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Date: 25 May 2021
Monash Absolute Investment Company (MA1 or Company) Timetable for the restructure of MA1 into an ETMF As you are aware, Monash Absolute Investment Company Limited (the Company) is undertaking a restructure of shareholders' investments from shares in the listed Company to units in a newly established exchange traded managed fund, Monash Absolute Active Trust (MAAT).
Further details of the restructure are set out in the shareholder booklet released to the ASX announcements platform on 31 March 2021. A copy of the shareholder booklet is annexed to this announcement. Key details of the in-specie distribution and capital return are set out in sections 2.1 and 6 of the shareholder booklet. The resolutions put to shareholders to approve the restructure of the Company were approved at the general meeting held on 10 May 2021.
The company has set out the proposed timetable for the restructure as follows:
Event Date
General Meeting to approve the Resolutions 10:00am on 10 May 2021
Announcement of the results of the Meeting and the effective date for the First Distribution (In-Specie) of MAAT Units
10 May 2021
Effective Date
Proposed date of suspension of the Company's shares
28 May 2021
Completion of acquisition of the Listed Assets by, and payment of the Cash Transfer Amount to, MAAT
31 May 2021
Company delisted from ASX 1 June 2021
Record Date for the First Distribution (In-Specie) 2 June 2021
First Distribution (In-Specie) of MAAT Units to Shareholders 4 June 2021
Dispatch of holding statements for MAAT Units distributed under the First Distribution (In-Specie)
9 June 2021
MAAT Units commence trading on ASX 10 June 2021
Intended payment of Second Distribution (Special Dividend) to Shareholders (as soon as practical after audit completed for FY21)
Expected September quarter 2021
Intended payment of Third Distribution (Capital Return) to Shareholders and Company wound up
Expected before 30 June 2022
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This announcement has been authorised by the Board of the Company. For all business development enquiries, please contact Winston Capital Partners (Acting on behalf of Monash Investors)
SA, NT and WA Advisers Andrew Fairweather P: +61 401 716 043 [email protected]
VIC, NSW and ACT Advisers Stephen Robertson
P: +61 418 387 427 [email protected]
VIC, QLD & NSW Advisers Cameron Harris P: +61 400 248 435 [email protected]
SA, VIC and NSW Advisers James Archer P: +61 432 273 335 [email protected]
For shareholder enquiries, please contact Boardroom Pty Limited P: 1300 737 760 (in Australia) +612 9290 9600 (international) E: [email protected]
For more information about the Company and the strategy, please refer to the Monash Investors website at www.monashinvestors.com. You can also follow us on Livewire here or subscribe to our updates here
Monash Absolute Investment Company Limited ACN 610 290 143
Shareholder Booklet
(containing a Notice of General Meeting and Explanatory Memorandum)
A General Meeting of the Company will be held virtually on Monday, 10 May 2021 at
10:00am (AEST).
This Shareholder Booklet should be read in its entirety. If Shareholders are in doubt as to
how to vote, they should seek advice from their financial advisor, accountant, solicitor or
other professional advisor prior to voting.
Should you wish to discuss any matter, please do not hesitate to contact the share
registry by telephone on 1300 737 760 (in Australia) or
+61 2 9290 9600 (International).
The Independent Expert has opined that the Transaction is fair and reasonable to
Shareholders and the Independent Directors recommend that Shareholders vote in
favour of all Resolutions.
Shareholders are urged to attend or vote by lodging the enclosed proxy form.
Important notices
This Shareholder Booklet has been prepared for the information of the Company's Shareholders in
connection with a proposal relating to the listing of Monash Absolute Active Trust (Hedge Fund)
(MAAT) and the de-listing of the Company.
This Shareholder Booklet is dated 31 March 2021.
Some terms used in this Shareholder Booklet are defined in the Glossary in Section 10.
Summary
The proposed new fund investment structure (an investment in Units in MAAT) has a number of
advantages over the current corporate investment structure (that is an investment in Shares in the
Company) (see Section 2.2).
The Independent Directors believe that the Transaction, designed to achieve a move to the MAAT
investment structure, is in the best interests of the Shareholders and recommend that Shareholders
vote in favour of all Resolutions.
The Independent Expert has opined that the Transaction is fair and reasonable to Shareholders.
In summary, if the Transaction is approved:
MAAT Units will be issued to the Company for it to distribute in-specie to the Company's
Shareholders on a 1 unit:1 share basis (First Distribution (In-Specie)) (franked to the
maximum extent possible). As a result Shareholders will have the same percentage holding in
MAAT as they have in the Company.
In return the Company will transfer the majority of its liquid assets to MAAT (comprising the
Listed Assets and the Cash Transfer Amount) and retain the Unlisted Assets and the Cash
Reserve. The Cash Reserve will be used to pay the Second Distribution (Special Dividend)
(see below) to Shareholders and to meet the Company's tax liabilities and operating and
winding up costs and includes a contingency amount for unforeseen costs.
The Company intends to pay a cash distribution to Shareholders (Second Distribution
(Special Dividend)) in the September 2021 quarter (franked to the maximum extent possible).
The Company will realise the Unlisted Assets that it holds and it is expected that the Company
will be wound up and a final distribution paid by the Company to Shareholders (Third
Distribution (Capital Return)) by no later than 30 June 2022.
ASIC and ASX
A final copy of this Shareholder Booklet has been lodged with ASIC and ASX. None of ASIC, ASX or
any of their respective officers takes any responsibility for the contents of this Notice or the merits of
the Transaction.
Forward Looking Statements
This Shareholder Booklet includes forward looking statements that have been based on current
expectations about future acts, events and circumstances. These forward looking statements are,
however, subject to risks, uncertainties and assumptions that could cause those acts, events and
circumstances to differ materially from the expectations described in the forward looking statements.
None of the Company, MAAT, The Trust Company (RE Services) Limited ABN 45 003 278 831 in its
capacity as responsible entity of MAAT (Responsible Entity) or any of their respective officers or any
person named in this Shareholder Booklet or involved in the preparation of this Shareholder Booklet
make any representation or warranty (either express or implied) as to the accuracy or likelihood of
fulfilment of any forward looking statement, or any events or results expressed or implied in any
forward looking statement, and you are cautioned not to place undue reliance on those statements.
The forward-looking statements in this Shareholder Booklet reflect views held only as at the date of
this Shareholder Booklet.
No financial product advice
This Shareholder Booklet does not constitute financial product, taxation or investment advice. It has
been prepared without taking into account the objectives, financial situation or needs of Shareholders
or other persons. Before deciding how to vote or act, Shareholders should consider the
appropriateness of the information, having regard to their own objectives, financial situation and needs
and seek legal, taxation and financial advice appropriate to their circumstances. Neither the Company
nor MAAT is licensed to provide financial product advice.
No cooling-off regime applies in respect of the acquisition of MAAT Units under the In-Specie
Distribution.
Contents
Chairman's letter
Important dates
Section 1 Introduction
Section 2 Transaction in detail
Section 3 Additional information relating to MAAT
Section 4 Additional information relating to the Company
Section 5 Resolution 1 - Amendment to the Company Constitution
Section 6 Resolution 2 - Approval for an equal reduction of capital and First
Distribution (In-Specie)
Section 7 Resolution 3 - Amendment to the Existing IMA
Section 8 Resolution 4 - Removal from the Official List of the ASX
Section 9 Resolution 5 - Admission of MAAT Units to Trading Status
Section 10 Definitions
Section 11 Notice of Meeting and voting and attendance information
Annexure A Pro-forma balance sheet of the Company (post-Transaction)
Annexure B Independent Expert's Report on the Transaction
Chairman’s Letter
Dear Shareholder,
On behalf of the directors of Monash Absolute Investment Company Limited (Company), I am pleased
to provide you with details of the proposed restructure of your investment as previously announced to
the ASX (Transaction). Approval for the Transaction is being sought at the meeting of the Company's
Shareholders for the Transaction which is to be held on Monday, 10 May 2021 at 10:00am (AEST).
The Independent Directors believe that the Transaction is in the best interests of Shareholders and
unanimously recommend that Shareholders approve the Transaction by voting in favour of all
resolutions.
The Independent Expert has opined that the Transaction is fair and reasonable to Shareholders.
What is the Transaction?
The Transaction is a proposed restructure of Shareholders' investments from Shares in the listed
Company into Units in a newly established exchange traded managed fund, Monash Absolute Active
Trust (Hedge Fund) (MAAT).
What are the key steps of Transaction?
The key steps required to implement the Transaction are:
the Company will transfer its investments in ASX listed entities (Listed Assets) and the
Cash Transfer Amount to MAAT and retains its unlisted investments (Unlisted Assets)
and the Cash Reserve;
in return, MAAT will issue to the Company the same number of fully paid ordinary
Units as there are issued Shares in the Company;
the MAAT Units will be distributed in-specie to the Company's Shareholders, on a 1:1
basis so that each investor will hold the same percentage interest of Units in MAAT as
they have in Shares in the Company (First Distribution (In-Specie));
the First Distribution (In-Specie) will likely comprise a capital and income component
for tax purposes. The Company intends to frank the income component to the
maximum extent possible;
MAAT will seek admission to AQUA Trading Status on the ASX after which MAAT
Units will be able to be traded on market;
the Company intends to pay a dividend, franked to the maximum extent possible, to
the Company's Shareholders as soon as possible after the completion of the audit of
the Company's 30 June 2021 financial statements expected to be in the September
2021 quarter (Second Distribution (Special Dividend));
the Company will de-list from the Official List of the ASX and realise the Unlisted
Assets; and
the Company intends to pay a further and final dividend to Shareholders on wind up of
the Company (Third Distribution (Capital Return)), which it is expected to occur by
no later than 30 June 2022.
Further details of the steps involved in the Transaction are set out in Sections 2.2 and 2.3 of this
Shareholder Booklet.
Why is the Board proposing the Transaction?
Over the last two years, the Company's Shares have traded at a significant discount to the value of the
Company's net tangible assets. In the Board’s view the current market capitalisation of the Company
does not properly reflect the value of its underlying net tangible assets.
The Board believes that the new ETMF investment structure has a number of advantages over the
current listed investment company structure and that the Transaction will increase Shareholder value.
What are the advantages and disadvantages of the Transaction?
The key advantage of the Transaction is that unitholders in MAAT will be able to trade their Units at a
price that is closer to the value of its underlying net tangible assets than has been achieved with the
Company. This is because, as an exchange traded managed fund, MAAT has appointed a market
maker agent to provide liquidity to investors on the ASX AQUA market by acting as a buyer and seller
of Units as required.
A summary of the advantages and disadvantages of the Transaction is set out in Section 2.4.
What do the Independent Directors recommend?
The Independent Directors believe that the Transaction is in the best interests of the Shareholders and
recommend that Shareholders vote in favour of all Resolutions.
What conclusion has the Independent Expert reached?
The Independent Expert has opined that the Transaction is fair and reasonable to Shareholders. The full Independent Expert Report is attached to this Shareholder Booklet at Annexure B.
If you have any questions about the Transaction, please do not hesitate to contact the Company on
+61 2 9237 8862 between 9.00am and 5.00 pm (Sydney Time), Monday to Friday.
On behalf of the Directors of the Company, we invite you to carefully consider this opportunity and
encourage you to vote on the Resolutions.
Yours faithfully,
Mr Paul Clitheroe AM
Non-Executive Chairman
Monash Absolute Investment Company Limited
Important dates
Event Date
MAAT lodges the MAAT PDS with ASIC 6 April 2021
MAAT applies for admission of MAAT Units to Trading Status 6 April 2021
General Meeting to approve the Resolutions 10:00am on 10 May 2021
Announcement of the results of the Meeting and the effective date for the First Distribution (In-Specie) of MAAT Units
10 May 2021
Effective Date 28 May 2021
Last day for Share trading cum return of capital
Completion of acquisition of the Listed Assets by, and payment of the
Cash Transfer Amount to, MAAT
31 May 2021
Company delisted from ASX 1 June 2021
Record Date for the First Distribution (In-Specie) 2 June 2021
First Distribution (In-Specie) of MAAT Units to Shareholders 4 June 2021
Dispatch of holding statements for MAAT Units distributed under the First Distribution (In-Specie)
9 June 2021
MAAT Units commence trading on ASX 10 June 2021
Intended payment of Second Distribution (Special Dividend) to Shareholders (as soon as practical after audit completed for FY21)
Expected September
quarter 2021
Intended payment of Third Distribution (Capital Return) to Shareholders and Company wound up
Expected before 30 June 2022
These dates are indicative only and the Directors reserve the right to change these
dates without notice.
Monash Absolute Investment Company Limited
ACN 610 290 143
(Company)
Explanatory Memorandum
1. Introduction
1.1 General
This Explanatory Memorandum forms part of the Shareholder Booklet that has been prepared
for the information of Shareholders in the Company in connection with the Shareholder
Meeting to be held on Monday, 10 May at 10:00am (AEST) (Meeting).
The Shareholder Booklet should be read in its entirety.
A Proxy Form is enclosed.
1.2 Purpose of the Shareholder Booklet
The purpose of the Shareholder Booklet is to:
(a) explain the terms of the Transaction and how it will be implemented (if approved); and
(b) provide material information to Shareholders to assist them in considering whether ornot to approve the Resolutions and the Transaction.
The Shareholder Booklet includes a statement of all the information known to the Company
that is material to Shareholders in deciding how to vote on Resolution 2, as required by
section 256C(4) of the Corporations Act.
1.3 Background
The Company was admitted to the official list of the ASX on 11 April 2016 as an investment
company.
Since then, the Company's investment objective has been to achieve a targeted positive
return. To achieve this objective, the Company appointed the Manager to invest in a portfolio
of predominantly Australian listed securities, as well as some pre-IPO securities, adopting
various investment techniques including the use of long and short positions, price targets, stop
loss levels, cash holdings and derivatives.
Over the last two years, the Company's Shares have traded at a significant discount to the
value of the Company's per Share net tangible assets. As at 31 December 2020, the audited
pre-tax net tangible asset backing per Share was $1.45, compared to a trading price of $1.32
per Share at close on 31 December 2020.
The Company is seeking to maximise Shareholder value by undertaking the Transaction
outlined below so that Shareholders have the opportunity to realise their investment for a
value much closer to the underlying net tangible asset value.
As at the date of this Shareholder Booklet, the investments of the Company consisted of, by
value, approximately:
(a) 64.91% investments in listed securities;
(b) 2.76% investments in unlisted securities; and
(c) the remaining 32.33% in cash.
1.4 Overview of Transaction
As announced to the ASX on 5 May 2020, the Company is proposing, subject to Shareholder
approval, that:
(a) MAAT will seek admission to AQUA Trading Status;
(b) subject to Shareholder approval, the Company will transfer the Listed Assets and part
of its cash (Cash Transfer Amount) to MAAT (a newly established registered
managed investment scheme that is wholly owned by the Company);
(c) the Company will retain the Unlisted Assets and a cash amount (Cash Reserve)
comprised of estimates of the Second Distribution (Special Dividend) (defined below)
and the tax liabilities, operating costs (for the 2021 and 2022 financial years) and
winding up costs of the Company plus a contingency amount for unforeseen costs;
(d) the Manager will continue to manage the Listed Assets and Cash Transfer Amount
using the same investment strategies as the Manager used for the Company;
(e) in consideration for the transfer of the Listed Assets and the Cash Transfer Amount to
MAAT, MAAT will issue to the Company the same number of Units as there are issued
Shares in the Company;
(f) those Units will be distributed in specie to the Company's shareholders on a 1 Unit:1
Share basis (First Distribution (In-Specie)). The First Distribution (In-Specie) will
likely comprise a capital and income component for tax purposes. The income
component will be franked to the maximum extent possible;
(g) the Company intends to pay a fully-franked dividend to the Company's Shareholders
as soon as possible after the completion of the audit of the Company's 30 June 2021
financial statements (expected to be in the September quarter 2021) (Second
Distribution (Special Dividend)) (franked to the maximum extent possible); and
(h) the Company intends to realise the Unlisted Assets, pay a final dividend to
Shareholders (Third Distribution (Capital Return)) and be wound up by no later than
30 June 2022,
(Transaction).
See Section 0 for more details of the Transaction.
The Company and the Responsible Entity of MAAT have entered into an implementation
agreement which sets out the process by which the Transaction will be proposed and
implemented and the terms and conditions that will govern the implementation of the
Transaction by the parties, subject to the satisfaction or waiver of conditions precedent
(Implementation Agreement). A summary of the Implementation Agreement is set out in
Section 2.9.
A diagram depicting the Transaction is provided below.
2. Transaction in detail
2.1 Key steps of the Transaction
The Transaction is proposed to be undertaken pursuant to the following steps:
(a) Transfer of Listed Assets and payment of the Cash Transfer Amount to MAAT
The Company intends to transfer the Listed Assets and the Cash Transfer Amount to
the newly established trust MAAT.
In consideration for this transfer, the Responsible Entity of MAAT will issue fully paid
ordinary units in MAAT (Units) to the Company. The number of Units to be issued will
be equal to the number of Shares on issue in the Company on the relevant record
date.
The Unlisted Assets and the Cash Reserve will continue to be held by the Company.
The Cash Reserve is comprised of estimates of the Second Distribution (Special
Dividend) and the tax liabilities, operating costs (for the 2021 and 2022 financial years)
and winding up costs of the Company plus a contingency amount for unforeseen
costs.
Any remaining Cash Reserve will be distributed to the Shareholders before the final
wind-up of the Company via the Third Distribution (Capital Return).
(b) First Distribution (In-Specie)
Under the Implementation Agreement, as summarised in Section 2.9, the Company
proposes to simultaneously undertake a capital reduction by way of an in specie
distribution under which all of the MAAT Units held by the Company will be transferred
to the Shareholders on a pro rata basis of 1 MAAT Unit for every 1 Share held by a
Shareholder on the Record Date.
The In-Specie Distribution of MAAT Units will:
(i) for tax purposes likely be treated as partly a distribution of income and partly a
distribution of capital; and
(ii) for the purposes of the Corporations Act (Cth) 2001 (Corporations Act) be an
equal reduction of share capital in accordance with sections 256B and 256C.
The First Distribution (In-Specie) will only proceed if the following outstanding
conditions are met or waived (together, the In-Specie Conditions):
(i) all regulatory approvals or consents necessary to implement the Transaction
(including conditional approval for MAAT to be admitted to Trading Status)
being granted, given, made or obtained on an unconditional basis and remain
in full force and effect in all respects;
(ii) each of the Resolutions being approved by the Shareholders;
(iii) the Independent Expert concluding that the Transaction is in the best interests
of the Shareholders in its report and not changing its conclusion or
withdrawing its report prior to 8.00 am on the Effective Date;
(iv) the Company and the Manager entering into a deed of variation to amend the
existing investment management agreement entered into 23 February 2016
(Existing IMA):
(A) to allow the transfer the Listed Assets and the Cash Transfer Amount
to the Responsible Entity; and
(B) to otherwise allow the Transaction;
(v) the Company being satisfied (acting reasonably) with the contents of the
opinion provided by its tax advisor setting out the tax implications of the
Transaction;
(vi) no Company or Responsible Entity prescribed occurrence occurring prior to
the Effective Date; and
(vii) neither the Company nor the Responsible Entity breaching any material
provision of the Implementation Agreement that remains unremedied prior to
the Effective Date.
Subject to satisfaction (or waiver) of the In-Specie Conditions, the First Distribution (In-
Specie) will be effected by an equal reduction of the Company capital on a pro rata
basis. The Shareholders that are:
(i) registered as a Shareholder as at 5.00pm (AEST) on the Record Date; or
(ii) entitled to be registered as a Shareholder of by virtue of a transfer of Shares
executed before 5.00pm (AEST) on the Record Date and lodged with the
Company at that time,
will receive an in specie distribution of the MAAT Units (which for tax purposes will
comprise a dividend and a return of capital) held by the Company in proportion to the
number of Shares held by them at the Record Date.
The Shareholders will continue to own the Company (which will hold the Unlisted
Assets and the Cash Reserve) and will also receive Units in MAAT (which will hold the
Listed Assets and Cash Transfer Amount). Following the First Distribution (In-Specie),
Shareholders will hold the same percentage of Shares in the Company as Units in
MAAT. As such, there will be no change to the overall investment of the Shareholders
in the underlying assets of the Company. Obviously, if an investor acquires or
disposes of Units their percentage holding in MAAT will change.
The Record Date for the First Distribution (In-Specie) is proposed to be 2 June 2021,
subject to the Resolutions being approved and satisfaction of the In-Specie
Conditions.
Due to the outstanding options to acquire Shares on issue in the Company prior to the
Record Date, it is not clear at the date of this Shareholder Booklet how many Shares
will be on issue at the Record Date. At the date of this Shareholder Booklet, the
Company has 44,956,003 Shares on issue and 435,369 unlisted options on issue
(Options). If no further Shares are issued prior to the Record Date, a total of
44,956,003 Units will be distributed to the Shareholders.
Simon Shields (the non-independent director) currently intends to exercise all of the
200,000 Options he holds and so acquire an additional Shares prior to the Record
Date and participate in the Transaction with an additional 200,000 Shares.
See Section 2.10 for details in relation to the taxation consequences of the
Transaction.
Resolution 2 seeks Shareholder approval for the capital reduction and First
Distribution (In-Specie).
The 30 June 2021 financial statements of the Company will be audited and
subsequent to the audit, the Manager's performance fee (if any) will be paid and it is
anticipated that a special dividend will be declared (the Second Distribution (Special
Dividend)). The Second Distribution (Special Dividend) will be franked to the
maximum extent possible.
(c) Second Distribution (Special Dividend)
In addition to the First Distribution (In-Specie) of MAAT Units to the Shareholders, the
Company intends to pay a dividend to the Company's Shareholders, the Second
Distribution (Special Dividend):
franked to the maximum extent possible); and
as soon as possible after the completion of the audit of the Company's 30
June 2021 financial statements, expected to in the September quarter 2021,
referred to as the Second Distribution (Special Dividend).
The Manager intends to procure that the Responsible Entity:
Shareholders will have the option to reinvest some or all of their Second
Distribution (Special Dividend) in additional MAAT Units under a separate
offer of Units to be made by the Responsible Entity and conditional on the
quotation of MAAT Units on ASX; and
allots additional MAAT Units immediately following the payment of the Second
Distribution (Special Dividend) and give relevant Shareholders a dividend
notice setting out the number of MAAT Units allotted to it, the price per MAAT
Units and other information relevant to the dividend.
Further information on the offer of MAAT Units is included in section 7 of the MAAT
PDS.
(d) Third Distribution (Capital Return)
The Directors intend that the Company will be liquidated and the any remaining cash
of the Company (net of liquidation costs) will be distributed to the Shareholders via the
Third Distribution (Capital Return) before 30 June 2022.
(e) MAAT application for admission to Trading Status
As part of MAAT's application to be admitted to Trading Status (Admission
Application), MAAT is required to issue a product disclosure statement in accordance
with section 1012B of the Corporations Act (MAAT PDS). The MAAT PDS is expected
to be lodged with ASIC on or around 6 April 2021.
The Admission Application will be made to ASX within 7 days after the date of the
MAAT PDS, however the Shareholders must note that the MAAT Units will not
commence trading unless the ASX grants approval to be admitted to Trading Status.
Shareholders should note that there is no guarantee that the Admission Application
will be successful or that the MAAT Units will be quoted on the ASX under the AQUA
Rules.
Resolution 6 seeks Shareholder approval for MAAT Units to be admitted to Trading
Status.
(f) Delisting of the Company from ASX
On successful completion of the Transaction, the Company intends to delist from the
ASX and continue to operate as an unlisted public company until realisation of the
Unlisted Assets.
The delisting of the Company is expected to occur on or around 1 June 2021, as set
out in the timetable in the Important Dates section of this Shareholder Booklet on page
4.
Resolution 4 seeks Shareholder approval for the Company to be delisted from the
Official List of the ASX.
(g) Additional items
In addition to the items above, the Company is seeking approval to amend the
Company Constitution and the Existing IMA to allow the Transaction to take place.
Resolutions 1 and 4 respectively seek Shareholder approval for these items. Please
refer to Sections 5 and 7 for further information.
2.2 Advantages and disadvantages of the Transaction
The Independent Directors are of the view that the following non-exhaustive list of advantages and disadvantages may be relevant to a Shareholder's decision on how to vote on the Resolutions.
Advantages of the Transaction Disadvantages of the Transaction
The Transaction will "close the gap" between the value of the underlying investments and the market price of the listed securities.
There are risk factors associated with an investment in MAAT. The key risks are set out in section 9 of the MAAT PDS (although an investment in the Company is subject to similar risks).
Investors who wish to realise their investment will have the opportunity of choosing to redeem their investment in MAAT or selling their Units on-market
The tax consequences of the Transaction may not suit your financial position.
The appointment of the market making agent will provide greater liquidity for investors.
Providing an exit at close to the net tangible asset value may encourage some investors to realise their investment and if there are more sellers than buyers of MAAT, MAAT may become sub-scale with its operating costs becoming a higher proportion of the overall income or value of MAAT.
MAAT has lower manager fees than the Company. The management fee reduces from 1.5% to 1.25%, and the performance fee hurdle increases from the RBA Cash Rate to the RBA Cash Rate plus 5%.
Until the winding up of the Company, investors will be indirectly subject to the operating costs of two investment entities.
MAAT has an independent Responsible Entity with much more substantial operating and compliance resources than the Company.
2.3 Summary of effect on Shareholders
What will you receive?
If the Transaction is implemented, it is expected that Shareholders will receive the following distributions.
(a) the First Distribution (In-Specie) of MAAT Units - for every Share a Shareholder
holds, they will receive a unit in MAAT. The First Distribution (In-Specie) of Units will
likely comprise a fully franked dividend and a return of capital with the income
component franked to the maximum extent possible. Overseas Shareholders will
receive Sale Facility Proceeds, as described below.
Shareholders are not required to contribute any payment for the MAAT Units for which
they are entitled to receive under the First Distribution (In-Specie).
(b) the Second Distribution (Special Dividend) - as soon as possible after the
completion of the audit of the Company's 30 June 2021 financial statements, expected
to be in the September quarter 2021, the Directors intend to declare a dividend and to
frank it to the maximum extent possible; and
(c) the Third Distribution (Capital Return) - by 30 June 2022 after realising the Unlisted
Assets, the Directors intend that the Company will be wound up and after payment of
costs and expenses, any surplus will be distributed to Shareholders.
Shareholders will have the option to reinvest all or part of their Second Distribution (Special
Dividend) in additional MAAT Units (rather than cash) under a separate offer of Units to be
made by the Responsible Entity, conditional on the quotation of MAAT Units on ASX. Further
information on the offer of MAAT Units is included in section 7 of the MAAT PDS.
What about Overseas Shareholders?
The distribution of MAAT Units to Overseas Shareholders under the First Distribution (In-Specie) will be subject to the legal and regulatory requirements in the Overseas Shareholders' relevant jurisdictions. If, in the opinion of the Directors, the requirements of any jurisdiction where a Shareholder is resident restricts or prohibits the distribution of MAAT Units or otherwise imposes on the Company an undue administrative cost and burden with respect to compliance with overseas legislation, the MAAT Units to which the Overseas Shareholder is entitled will be sold by the Company on behalf of that Shareholder as soon as practicable after the Record Date to a nominee of the Company's choice.
The nominee will be directed to sell those MAAT Units on market and account to the Overseas Shareholder for the proceeds of sale less any costs or expenses in connection with the sale (Sale Facility Proceeds).
The Sale Facility Proceeds to be distributed to the Overseas Shareholders may be more or less than the notional dollar value of the First Distribution (In-Specie) in this Explanatory Memorandum.
Overseas Shareholders will receive the Second Distribution (Special Dividend) and the Third Distribution (Capital Return) under the Transaction in the same manner as Shareholders who reside in Australia.
Will the rights attaching to Shares be altered?
The rights attaching to Shares will not alter.
What is the impact on your shareholding in the Company?
The number of Shares in the Company that you hold, and the percentage shareholding interest that you hold, will not change as a result of the Transaction.
If the Transaction is implemented, the value of your Shares in the Company will be less than the value held prior to the Transaction being implemented due to the removal of the Listed Assets and Cash Transfer Amount from the Company’s asset portfolio. The size of any decrease will be dependent on the value ascribed to the Listed Assets and Cash Transfer Amount.
A post-Transaction pro-forma balance sheet of the Company is contained in Annexure A to this Shareholder Booklet which assumes completion of the First Distribution (In-Specie) and Second Distribution (Special Dividend) (based on the financial accounts of the Company as at 31 January 2021).
Do you have to do anything to receive your MAAT Units?
You must hold Shares on the Record Date in order to receive a First Distribution (In-Specie) of MAAT Units.
If the Transaction proceeds, you will automatically receive the MAAT Units you are entitled to receive (unless you are an Overseas Shareholder, in which case you may receive the Sale Facility Proceeds – see above for more information), even if you vote against the Transaction or do not vote at all. If the Transaction proceeds, and you do not wish to remain a holder of MAAT Units, you will be able to trade your MAAT Units, as set out below.
Will I be able to trade my MAAT Units?
If the Transaction is approved by Shareholders and is implemented, a holder of MAAT Units will be able to sell their MAAT Units.
The MAAT PDS is anticipated to be lodged with ASIC on or around 6 April 2021. Conditional on the approval of all of the Resolutions contained in the Notice, MAAT will seek admission to Trading Status of MAAT Units.
It is expected that the MAAT Units will be able to be traded on 10 June 2021, as set out in the timetable in the Important Dates section of this Shareholder Booklet on page 4.
In the event MAAT is successful in being admitted to Trading Status, there will be a liquid market for the MAAT Units. Investors in MAAT will be able to exit MAAT either by directly making a withdrawal request to the Responsible Entity for the redemption of their MAAT Units or by selling their MAAT Units on the ASX.
What are the taxation implications of the Transaction?
A general guide to the taxation implications of the Transaction is set out in Section 2.10 of this Explanatory Memorandum. The description is in general terms and is not intended to provide taxation advice in respect of particular circumstances of any Shareholder. The taxation implications of the Transaction will depend on the individual circumstances of each Shareholder. Shareholders should obtain professional advice as to the taxation implications of the Transaction in their specific circumstances.
Is there any stamp duty payable?
Shareholders will not bear any stamp duty on the transfer of Units to them pursuant to the First Distribution (In-Specie).
Conditionality
The First Distribution (In-Specie) is conditional upon MAAT receiving conditional approval from ASX for admission to Trading Status of MAAT's Units. If each of the Resolutions (which are interdependent), are approved but MAAT does not receive conditional approval from ASX for any reason, the Transaction will not be completed, which means the Shareholders will not receive any MAAT Units.
2.4 Summary of effect on Optionholders
If the Transaction completes, under ASX Listing Rule 7.22.3, the terms of the Options will be reorganised such that the exercise price of each Option will be reduced by the amount returned
as capital in relation to each Share. Refer to Section 4.1 for further information on the Options on issue.
The exact value of the reduction to the exercise price will be known on the Implementation Date, when the value of the Listed Assets has been ascertained.
2.5 Intention of the Company if the Resolutions are not approved or the
Transaction otherwise does not complete
Each of the Resolutions are conditional and interdependent. If any of the Resolutions are not passed, the Company will retain its holding of the Listed Assets, the Transaction will not proceed, the Shareholders will not be issued Units and MAAT will not proceed with its application to be admitted to Trading Status on the ASX.
In that event, the Company would seek to maximise Shareholder value and would:
(i) continue the business of the Company as presently conducted; and
(ii) not make any major changes to the business of the Company.
2.6 Intention of the Company if the Resolutions are approved and the Transaction
completes
(a) In relation to the Company
If the Transaction successfully completes, the Manager will continue to manage theUnlisted Assets of the Company as presently conducted in order to maximiseShareholder value.
The Company does not intend to make any future investments. Rather, once its delistinghas taken place, the Company intends to operate as an unlisted public company untilthe value from the Unlisted Assets can be realised for Shareholders.
The Company intends to pay the Second Distribution (Special Dividend) as soon as
possible after the completion of the audit of the Company's 30 June 2021 financial
statements expected to be in the September quarter of 2021. The Company will be
wound up by no later than 30 June 2022 when the Company intends to pay the Third
Distribution (Capital Return) to Shareholders.
(b) In relation to MAAT
If the Transaction successfully completes, the Manager intends to continue to managethe Listed Assets on behalf of MAAT pursuant to the New IMA and following the sameinvestment strategy as the Company.
The Company will have no interest in MAAT after completion of the Transaction,however the assets of each of the Company and MAAT will be managed by theManager.
2.7 Differences between Shares and Units
A summary of the key differences between Shares and Units is set out below.
Shares in the Company Units in MAAT
Security Fully paid ordinary shares Fully paid ordinary units
Issuer The issuer of the Shares is Monash
Absolute Investment Company Limited.
The issuer of fully paid units in Monash
Absolute Active Trust (Hedge Fund) is
The Trust Company (RE Services)
Limited, the responsible entity of
Monash Absolute Investment Trust
(Hedge Fund).
Listing and
quotation
The Company is admitted on the Official
List of the ASX and its Shares are
quoted on the ASX under the ticker
code 'MA1'.
MAAT is seeking to be admitted to
Trading Status.
If it is admitted, MAAT intends to use the
ticker code 'MAAT'.
How trading
prices are
calculated
Trading of Shares takes place on ASX.
The price of Shares is determined by
the aggregate supply and aggregate
demand for the Shares on the
exchange managed by ASX.
Trading of Units takes place on ASX.
If MAAT has one class of Units on issue,
the application or withdrawal price of
Units is the amount calculated as at the
close of business on the application or
withdrawal date, as applicable, as
follows:
(a) establishing the NAV, which
will generally be based on the
daily market value of MAAT's
assets, and either adding (if an
application) or deducting (if a
withdrawal) Transaction Costs;
and
(b) dividing the resulting amount
by the number of Units on
issue.
If MAAT has more than one class of
Units on issue, the application or
withdrawal price of Units is the amount
calculated as at the close of business on
the application or withdrawal date, as
applicable, as follows:
Application Unit price =
[A - B] + Transaction Costs
N
Withdrawal Unit price =
[A - B] - Transaction Costs
N
Where:
A means the value of the Assets
attributable to the class of Units to which
the request relates.
B means the Liabilities attributable to the
class of Units to which the request
relates but excluding application money
in respect of applications that have not
been accepted by the Responsible
Entity.
N means the number of Units on issue
attributable to that class of Units.
Refer to Section 3.2 in relation to the
appointment of the Market Maker Agent
to provide a liquid market for MAAT
Units.
Terms of
issue
The rights and obligations attaching to
Shares are set out in the Company
Constitution. Additional rights and
obligations are contained in the
provisions of the Corporations Act.
The rights and obligations attaching to
Units are set out in the MAAT
Constitution. Additional rights and
obligations are contained in the
provisions of the Corporations Act.
Voting rights Subject to any rights or restrictions for
the time being attached to any class or
classes of shares in the Company (at
present, there is only one class of
shares), at a general meeting of the
Company:
(a) each Shareholder entitled to
vote may vote in person or by
proxy, attorney or
representative;
(b) on a show of hands, every
Shareholder present in person
or by proxy, attorney or
representative has one vote
(unless a Shareholder has
appointed more than one
proxy); and
(c) on a poll, every Shareholder
present in person or by proxy,
attorney or representative has
one vote for each fully paid
Share held (with adjusted
voting rights for partly paid
shares).
If the votes are equal on a proposed
resolution, the Chairman of the meeting
does not have a second or casting vote
and the matter is decided in the
negative.
Subject to the MAAT Constitution and
the Corporations Act, a proposed
resolution may be decided by a
percentage of Units or in writing
executed by unitholders holding the
requisite majority of Units.
Voting is by a show of hands where
each unitholder in person or by proxy is
entitled to one vote on a show of hands.
If more than one proxy has been
appointed by a unitholder, only one vote
is to be recorded on a show of hands in
respect of that unitholder. If a proxy is
acting as proxy for more than one
unitholder, only one vote is to be
recorded on a show of hands in respect
of that proxy.
On a poll each unitholder or unitholders
of the class, as applicable, in person or
by proxy is entitled to 1 vote for each
dollar of the value of whole Units or
Units of the class, as applicable, held.
Any objection made to a vote cast can
only be made at the meeting. The
Chairperson’s decision as to the validity
of a vote is final and binding on all
unitholders or all unitholders of a class
of Units, as applicable, and for all
purposes.
Dividends or
distributions Subject to the Corporations Act, the
Board may pay any interim and final
dividends that, in its judgement, the
financial position of the Company
justifies. The Board may also pay any
dividend required to be paid under the
terms of issue of a Share, and fix a
record date for a dividend and the
timing and method of payment.
The Responsible Entity may elect to
distribute to Unitholders any amount
(income or capital) pro rata to the total
number of units held but the
Responsible Entity aims to distribute, in
cash, at least an amount equal to the
taxable income of MAAT less any non-
Cash Transfer Amounts included in
taxable income .
Issue of
further
securities
Subject to the Corporations Act, ASX
Listing Rules, ASX Settlement
Operating Rules and any rights and
restrictions attached to a class of
shares, the Board may issue or grant
options for, or otherwise dispose of,
Shares on the terms, with the rights,
and at the times that the Board decides.
The Responsible Entity may issue
classes of Units and, other than in
respect of the matters required by
section 601GA of the Corporations Act
which are set out in the MAAT
Constitution, determine the rights,
liabilities, obligations and restrictions
which attach to each class. A unitholder
holds a Unit subject to the MAAT
Constitution and the rights, liabilities,
obligations and restrictions attaching to
that Unit.
Variation of
class rights In addition to the requirements under
the Corporations Act and ASX Listing
Rules, the procedure set out in the
Company Constitution must be followed
for any variation of rights attached to
the Shares. The rights attached to a
class of Shares may be varied or
cancelled by:
(a) the holders of at least 75% of
the issued Shares in the class
consenting in writing; or
(b) a special resolution passed at
a separate meeting of the
holders of Shares in that
class.
The rights attaching to Units may only
be varied by amending the terms of the
MAAT Constitution, as summarised
below.
General
meetings Each Shareholder is entitled to receive
notice of, attend and vote, at general
meetings of the Company. The
Company must give at least 28 days’
written notice of a general meeting.
The Board may postpone, cancel or
change the place of a meeting of
shareholders in accordance with section
Each unitholder is entitled to receive
notice of, attend and vote, at general
meetings of MAAT. The Responsible
Entity must give at least 21 days’ written
notice of a general meeting.
The Responsible Entity may convene a
meeting of unitholders at any time in
accordance with the Corporations Act
249D and 250N of the Corporations Act
and the Company Constitution.
The Company must hold an annual
general meeting at least once in each
calendar year and within 5 months after
the end of its financial year.
and, while MAAT is quoted, the AQUA
Rules.
The Responsible Entity has the power to
adjourn a meeting, and where convened
on the requisition of unitholders, dissolve
a meeting, where a quorum of
unitholders is not present within 30
minutes of the start time of a meeting.
Winding up/
termination Subject to the Company Constitution,
the Corporations Act and any
preferential rights attaching to any class
or classes of Shares, on the Company
being wound up, Shareholders will be
entitled to any surplus assets of the
Company in proportion to the Shares
held by them.
If the Company is wound up, the
liquidator may, with the sanction of a
special resolution:
(a) divide the whole or part of the
Company’s property among
Shareholders;
(b) decide how the division is to
be carried out as between
Shareholders or different
classes of Shareholders; and
(c) vest assets of the Company in
trustees on any trust for the
benefit of the shareholders as
the liquidator thinks fit.
MAAT will terminate two days before the
80th anniversary of the date of the
MAAT Constitution, however the
Responsible Entity may terminate it
earlier if either an event occurs which
under the Corporations Act or the MAAT
Constitution obliges it to wind up MAAT
or otherwise by notice to unitholders.
MAAT must be terminated in accordance
with the Corporations Act and, while
MAAT is quoted, the AQUA Rules.
On termination, the Responsible Entity
will realise MAAT's assets and pay to
unitholders their portion of the net
proceeds of realisation. The
Responsible Entity has the power to
postpone the realisation of assets to
maximise the net proceeds of the
realisation of those assets attributable to
unitholders provided that the
Responsible Entity considers that the
postponement is not inconsistent with its
duties under the Corporations Act.
The Responsible Entity is entitled to
retain any assets to discharge liabilities
and be indemnified out of the assets in
respect of all costs incurred in
connection with termination of MAAT.
Appointment
and removal
of directors
Under the Company Constitution, the
Board is comprised of a minimum of
three Directors. Directors can be
elected or re-elected at general
meetings of the Company. The
Company may from time to time by
resolution remove any Director from
office or appoint an additional Director
or additional Directors.
No Director (excluding any managing
director) may hold office without re-
election beyond the third annual general
meeting following the meeting at which
N/A
the Director was last elected or re-
elected or three years, whichever is
longer. The Board may also appoint a
Director in addition to the existing
Directors or to fill a casual vacancy on
the Board, and that Director (apart from
the managing director) must not hold
office past the next annual general
meeting of the Company.
Amendment The Company Constitution may be
modified, repealed or replaced only by a
special resolution passed by
Shareholders.
The MAAT Constitution may by deed
modify, repeal or replace the MAAT
Constitution if it reasonably considers
the amendments will not adversely effect
the unitholder's rights. Otherwise, it must
obtain unitholder approval of the
amendments at a meeting of
unitholders.
Transfer of
securities Subject to the Company Constitution
and to any restrictions attached to a
Share, Shares may be transferred by
any means permitted by the
Corporations Act or by law. The
Company must comply with the
obligations imposed on it by the ASX
Listing Rules or the ASX Operating
Rules.
The Board may or must refuse to
register a transfer of Shares:
(a) only if that refusal would not
contravene the ASX Listing
Rules or the ASX Operating
Rules;
(b) if the registration of the
transfer would create a new
holding of an unmarketable
parcel;
(c) to a subsidiary of the
Company; and
(d) if the Corporations Act, the
ASX Listing Rules or the ASX
Operating Rules forbids
registration.
If the Board refuses to register a
transfer, the Company must give the
lodging party notice of the refusal and
the reasons for it within five business
days after the date on which the
transfer was delivered to it.
While MAAT is quoted, transfers or units
are subject to the operation of the
Corporations Act, CHESS and the
AQUA Rules (as applicable).
Subject to the MAAT Constitution and
any class rights, a unitholder may
transfer Units in the manner as the
Responsible Entity from time to time
prescribes.
The Responsible Entity is not obliged to
register a transfer where the transferee
does not meet the Responsible Entity's
criteria for a unitholder, the transfer is
not duly stamped (where required), or
any amount payable by the transferee to
the Responsible Entity in respect any of
the transferor's Units remains unpaid.
While MAAT is quoted and subject to the
AQUA Rules, the Responsible Entity
may request a holding lock be applied to
any Units in certain circumstances,
including but not limited to, where:
(a) the Responsible Entity has a lien
on the Units the subject of the
transfer;
(b) registration of the transfer may
break an Australian law and the
ASX has agreed in writing to the
application of a holding lock or
that the Responsible Entity may
refuse to register a transfer;
(c) the relevant unitholder has
agreed in writing to the
application of a holding lock or
that the Responsible Entity may
refuse to register a transfer; or
(d) it is otherwise permitted under
the AQUA Rules, and the
Responsible Entity must do so if
the AQUA Rules require, but
must tell the unitholder or the
broker as the Corporations Act
or the AQUA Rules require.
2.8 Differences between the ASX Listing Rules and the AQUA Rules
As MAAT will be seeking to be admitted to Trading Status on the ASX under the AQUA Rules, this
Shareholder Booklet is required to set out the key differences between the ASX Listing Rules and the
AQUA Rules. These differences are set out below and generally relate to the level of control and
influence that the issuer of a product has over the underlying instrument. Further information relating
to the AQUA market can be found at “https://www2.asx.com.au/issuers/investment-products”.
Requirements ASX Listing Rule AQUA Rule
Continuous
Disclosure
Issuers of products under the ASX
Listing Rules are subject to the
continuous disclosure requirements
under ASX Listing Rule 3.1 and
section 674 of the Corporations Act.
Issuers of products under the AQUA
Rules are not subject to the continuous
disclosure requirements under ASX
Listing Rule 3.1 and section 674 of the
Corporations Act.
However, under the AQUA Rules, the
Responsible Entity must provide ASX
with information where the non-
disclosure of that information may lead
to the establishment of a false market
in the Units or would materially affect
the price of the Units.
The Responsible Entity is required to
disclose information about the NAV of
MAAT daily. It must also disclose
information about:
net monthly applications andredemptions;
distributions and otherdisbursements; and
any other information that isrequired to be disclosed to ASICunder section 675 of theCorporations Act.
The Responsible Entity will make any
required disclosure through the ASX
announcements platform at the same
time as it makes required disclosures
to ASIC.
Periodic
Disclosure
Issuers of products under the ASX
Listing Rules are required to disclose
half-yearly and annual information or
annual reports under Chapter 4 of the
ASX Listing Rules.
Issuers of products quoted under the
AQUA Rules are not required to
disclose half yearly and annual
financial information or reports.
However, the Responsible Entity of
MAAT is still required to lodge ASIC
financial reports required under
Chapter 2M of the Corporations Act.
The Responsible Entity will also lodge
these reports with ASX at the time they
submit them to ASIC.
Corporate
Control
Listed companies and listed managed
investment schemes are subject to
requirements in the Corporations Act
and the ASX Listing Rules relating to
matters such as takeover bids, share
buy-backs, change of capital, new
issues, restricted securities, disclosure
of directors’ interests and substantial
shareholdings.
As products quoted under the AQUA
Rules are not shares in companies, the
issuers of such products are not
subject to the corporate governance
requirements referred to under the
Corporations Act and the ASX Listing
Rules.
However, the Responsible Entity, as an
issuer of a product quoted under the
AQUA Rules, is subject to the general
requirement to provide ASX with
information concerning itself that may
otherwise lead to the establishment of
a false market or materially affect the
price of its products. Section 601FM of
the Corporations Act will continue to
apply to the Responsible Entity in
relation to the removal of a
Responsible Entity of a registered
managed investment scheme by
members.
Related party
Transactions
Chapter 10 of the ASX Listing Rules
specifies controls over related party
transactions (which relate to
transactions between an entity and
other people in a position to influence
the entity).
Chapter 10 of the ASX Listing Rules
does not apply to AQUA products such
as MAAT’s Units. However, as MAAT
is a registered managed investment
scheme it is still subject to the related
party requirements in Part 5C.7 and
Chapter 2E of the Corporations Act.
Auditor
Rotation
There are specific requirements in
relation to auditor rotation under Part
2M.4 Division 5 of the Corporations
Act.
The specific auditor rotation
requirements under Division 5 of Part
2M.4 of the Corporations Act do not
apply to AQUA product issuers.
However the Responsible Entity will
continue to be required to undertake
independent audit of its compliance
with MAAT's compliance plan in
accordance with section 601HG of the
Corporations Act.
2.9 Summary of the Implementation Agreement
As noted in Section 1.3 above, the Company and the Responsible Entity, The Trust Company
(RE Services) Limited ABN 45 003 278 831, have entered into the Implementation Agreement
which sets out the process in which the Transaction will be implemented and the terms and
conditions that will govern the implementation of the Transaction by the parties.
The Implementation Agreement details the steps of the Transaction (which are summarised in
this Shareholder Booklet) and each party's obligations with respect to those steps. The
Implementation Agreement also includes the In-Specie Conditions which must be satisfied (or
waived) for the First Distribution (In-Specie) to proceed, as summarised in Section 2.1(b).
The Company has agreed to pay all reasonable costs or expenses incurred by the
Responsible Entity in connection with the Transaction, however if the Transaction is not
completed by 31 July 2021 (End Date) and the Company, acting reasonably, considers that
the delay or non-completion of the Transaction is due to or partially attributable to a breach of
the Responsible Entity's obligations under the agreement, the Company and the Responsible
Entity will negotiate in good faith as to the portion of the costs that the Company would be
liable to pay. The Company indemnifies the Responsible Entity against all loss suffered or
reasonably incurred by breach of this obligation.
Either party can terminate the Implementation Agreement at any time before the Meeting if:
(a) the other party is in material breach of the Implementation Agreement and, to the
extent that the breach is capable of remedy, that breach is not remedied by the
breaching party within five Business Days of receiving notice of the breach and the
non-breaching party's intention to terminate;
(b) a court or another government agency has issued an order, decree or ruling, or taken
other action, that permanently restrains or prohibits the Transaction, and the action is
final and cannot be appealed or reviewed or the party, acting reasonably, believes that
there is no realistic prospect of a successful appeal or review; or
(c) if the In-Specie Conditions have not been satisfied or waived by the End Date and the
parties have not agreed to extend such date, provided that a party may not terminate
the agreement if the relevant In-Specie Condition has not been satisfied or agreement
cannot be reached as a result of that party's breach of the agreement, or a deliberate
act or omission of that party.
After the date of this Meeting, if the Transaction has not been implemented on or before the
End Date this agreement may be terminated by either party giving notice in writing to the
other.
The Implementation Agreement otherwise contains terms and conditions (including standard
representations, warranties and indemnities) considered standard for an agreement of this
nature.
2.10 Summary of taxation consequences of the Transaction
The following is a general summary of the potential tax consequences of the Transaction to Shareholders and the Company. The comments only apply to Shareholders who are resident in Australia for tax purposes and who hold their Shares in the Company on capital account for Australian income tax purposes. Non-resident shareholders should obtain tax advice on the implications of the Transaction to their Australian tax position and the tax rules in their country
The summary of potential tax consequences described below are statements of general principle only and Shareholders should be aware that the actual Australian tax implications may differ from those summarised below, depending on the individual circumstances of each Shareholder. Shareholders should obtain and rely on their own tax advice in relation to taxation consequences of the Transaction having regard to their particular circumstances. Neither the Company nor any of its officers accept any responsibility or liability in respect of such consequences.
Transfer of listed assets to MAAT
The transfer of the Company’s Listed Assets to MAAT will result in a disposal of those assets by the Company for tax purposes. A gain or loss for tax purposes may arise on the disposal of each asset depending on the difference between the consideration received on disposal and the tax cost base of the asset. Realised gains and losses on the disposal of the listed assets will be required to be included in the calculation of the Company’s taxable income for the year ended 30 June 2021. Broadly, this should result in a crystallisation of the Company’s deferred tax liability to the extent it relates to the Listed Assets. Any tax paid by the Company should generate franking credits.
It is anticipated that realised gains will arise on 11 May when the Listed Assets are transferred to MAAT and that these realised gains will create a tax liability for the Company for the year ended 30 June 2021. Part of that tax liability will be payable after 30 June 2021. Sufficient cash will be left in the Company to enable it to pay this tax liability to the ATO as well to pay a franked dividend on or around September 2021. The franking credits attached to this dividend will represent the tax paid by the Company as a result the transfer of the Listed Assets to MAAT.
Dividends received from the Company
The First Distribution (In-Specie) of units to Shareholders will include a dividend. Shareholders who receive dividends from the Company (including the First Distribution (In-Specie) of units) will be required to include the amount of the dividend and any franking credits attached to the dividend in their assessable income.
Generally, a tax offset should be available for franking credits. However Shareholders will not be able to claim a tax offset for franking credits (and will not be required to include an amount referable to franking credits in their assessable income) unless the Shareholder satisfies the “holding period rule” in respect of their Shares in the Company.
Provided a Shareholder satisfies the “holding period” rule and to the extent that their entitlement to franking credits exceeds their income tax liability for the income year, the excess franking credits may be refundable to the Shareholder (,if the Shareholder is an individual or complying superannuation fund). Other types of taxpayers should seek their own tax advice.
Return of capital from the Company
The First Distribution (In-Specie) of units to Shareholders will also include a return of capital. The return of capital by the Company should reduce a Shareholder’s capital gains tax (“CGT”) cost base of their shares in the Company. If the CGT cost base is reduced to nil the excess will result in a capital gain. Resident individuals, trusts (conditions apply) and superannuation shareholders who have held their investments on capital account for at least 12 months may be entitled to the CGT discount.
The CGT cost base in the MAAT units should be equal to the distribution satisfied by the issue of units in MAAT.
It is the intention of the Company to frank the in-specie dividend payment to the full extent possible.
Australian tax status of MAAT
For information on the Australian tax treatment of MAAT, please refer to the PDS issued with this Shareholder Booklet.
3. Additional information relating to MAAT
3.1 Summary of New IMA
The Responsible Entity has appointed the Manager as manager of MAAT, pursuant to the
New IMA entered into on 9 November 2020. The rights and obligations of each party under the
New IMA are conditional upon the ASX admitting the MAAT Units to Trading Status.
A summary of the key material terms of the New IMA are set out below.
Services
Pursuant to the New IMA, the Manager agrees to invest, promote and manage the assets of
MAAT (which, subject to completion of the Transaction, will include the Listed Assets) on
behalf of the Responsible Entity in compliance with the investment strategy for MAAT, which
cannot be changed unless the consent of the Responsible Entity is first obtained (such
consent to not be unreasonably withheld).
In providing the Services, the Manger's responsibilities include, but are not limited to:
(a) complying with the investment strategy for MAAT and reviewing the portfolio of MAAT
at regular intervals to ensure the portfolio is managed in accordance with the
investment strategy for MAAT;
(b) monitoring market liquidity and risks in relation to MAAT, and ensuring that
appropriate portfolio management techniques are in place in order to minimise such
risks;
(c) ensuring that levels of securities trading for MAAT are appropriate, and not intended to
generate brokerage;
(d) ensuring that trades in the assets of MAAT are executed at the best available price
and on a timely basis;
(e) ensuring that an appropriate currency hedging policy is formulated and maintained
where MAAT has exposure to non-Australian assets; and
(f) providing proper instructions to Morgan Stanley & Co. International plc (the
Custodian) and the Market Maker Agent in relation to transactions concerning the
assets of MAAT.
Powers and discretions of the Manager
Subject to the Corporations Act and the ASX Listing Rules, the Manager has the powers
necessary to, on behalf of the Responsible Entity, invest money constituted in or available to
MAAT, make, hold, realise and dispose of investments within MAAT's portfolio. The Manager
may:
(a) request the Responsible Entity to summon a meeting of unitholders which the
Responsible Entity must do, subject to its duties under any relevant law;
(b) request the Responsible Entity consider retirement and appointment of a replacement
responsible entity of MAAT;
(c) perform similar management or investment services for other persons;
(d) act as responsible entity for any one or more managed investment schemes or as
manager or trustee of any trusts; and
(e) invest MAAT in another trust or scheme of which it or its related body corporate is the
manager on the basis that any fees will be rebated to avoid double dipping.
Management of potential conflicts
The Manager may invest in, deal with or engage the services of the Manager’s related bodies
corporate engaged in separate business activities which are entitled to charge fees, brokerage
and commissions provided that the terms of such arrangement are in the ordinary course of
business and on arm's length terms, and are first approved by the Responsible Entity. The
Manager must first notify the Responsible Entity when it proposes to invest in, deal with or
engage the services of the Manager’s related bodies corporate.
Amendments
The New IMA may be amended by exchange of letters signed by the parties.
Responsible Entity Indemnity
The Responsible Entity must indemnify and hold harmless the Manager against any liabilities
reasonably incurred by the Manager arising out of, or in connection with the Manager or any of
its officers or agents properly acting under the New IMA except to the extent that any liability is
caused by negligence, fraud, default or dishonesty of the Manager or any of its officers,
employees or agents, the Manager's breach of the agreement or failure to meet the required
standard of care or any act or omission of the Manager or any of its officers, employees or
agents that causes the Responsible Entity to be liable to unitholders for which the Responsible
Entity has no right of indemnity from MAAT (Excluded Acts).
This obligation continues after the termination of the New IMA.
Manager Indemnity
The Manager must indemnify and hold harmless the Responsible Entity against any liabilities
reasonably incurred by the Responsible Entity and MAAT arising out of or, or in connection
with, any of the Excluded Acts.
This obligation continues after the termination of the New IMA.
Management fee and performance fee
In consideration for the Manager investing and managing the portfolio of MAAT and providing
the services specified in the New IMA, the Responsible Entity will pay the Manager a
management fee and performance fee. The management fee will be calculated as equal to
125 basis points per annum multiplied by the daily value of the total portfolio referable to
MAAT. The management fee is calculated and accruing daily and is payable by the
Responsible Entity to the Manager within 30 days of the end of each calendar month. The
management fee and performance fee are to be paid out of MAAT and must be paid in the
manner and at the time (if any), specified in the MAAT Constitution.
Expenses
The Manager is entitled to be reimbursed for all expenses it reasonably and properly incurs in
performing the services provided that it provides the Responsible Entity with written notice of
the expenses together with copies of any invoices or supporting documents that the
Responsible Entity may reasonably request to verify that the expenses have been reasonably
and properly incurred.
Term and Termination
The initial term of the New IMA is ten years, which may be extended by additional rolling ten
year terms by the Manager on written notice to the Responsible Entity and subject to
compliance with the ASX Listing Rules and AQUA Rules and a resolution approving the
extension being passed by the unitholders of MAAT.
The Responsible Entity may terminate the New IMA with immediate effect on written notice to
the Manager, if:
(a) MAAT terminates in accordance with the MAAT Constitution or the Corporations Act;
(b) on three months' notice in writing to the Manager, if after the initial term of the New
IMA of ten years or such longer term as is approved by the unitholders, an ordinary
resolution is passed by the unitholders at properly convened meeting directing the
Responsible Entity to terminate the New IMA or the appointment of the Manager in
respect of MAAT;
(c) where a change of control event occurs in respect of the Manager and a special
resolution is passed by the unitholders of MAAT at a meeting properly convened
directing the Responsible Entity to terminate the New IMA or the appointment of the
Manager in respect of MAAT; or
(d) if any of the mutual termination rights set out below occur.
The Manager is entitled to terminate the New IMA on written notice to the Responsible Entity:
(a) to take effect three months after the date of the notice (or a lesser period, if the
Responsible Entity agrees);
(b) to take effect immediately if:
(i) the Responsible Entity ceases to be the responsible entity of MAAT; or
(ii) any of the mutual termination rights set out below occur.
In addition to the rights set out above, the Responsible Entity or the Manager may terminate
the New IMA with immediate effect on written notice if:
(a) a receiver, receiver and manager, administrative receiver or similar person is
appointed with respect to the assets and undertaking of either the Manager or the
Responsible Entity, as applicable;
(b) either the Manager or the Responsible Entity, as applicable:
(i) goes into liquidation (other than for the purpose of a reconstruction or amalgamation on terms previously approved in writing by either the Manager or the Responsible Entity, as applicable);
(ii) is placed under official management or an administrator is appointed to its affairs;
(iii) ceases to carry on business in relation to its activities as an investment manager;
(iv) materially breaches or fails to observe or perform any duty, obligation, representation, warranty or undertaking required of it under the New IMA that, in the opinion of either the Manager or the Responsible Entity (as applicable), materially and adversely affects the rights of unitholders, and fails to rectify the breach or failure to rectify the breach to the reasonable satisfaction of either the Manager or the Responsible Entity (as applicable) within a reasonable period specified by the relevant party in a notice to do so;
(c) either the Responsible Entity or the Manager (as applicable) considers it reasonably
necessary to do so in order to ensure compliance with its duties and obligations under
the relevant law and in any circumstances by the relevant law, trust law or any other
law or by any court of competent jurisdiction.
Limitations on removal of Manager
The Responsible Entity must not change the Manager or appoint a new investment manager
for MAAT unless the Manager consents.
The Manager may request that the Responsible Entity enter into an agreement in which the
New IMA is novated to an incoming investment manager which is a related body corporate of
the Manager.
3.2 Appointment of Market Maker Agent
The Responsible Entity has appointed Macquarie Securities (Australia) Limited as its market maker agent for MAAT to provide liquidity to investors on the ASX AQUA market by acting as a buyer and seller of Units as required in the ordinary course of investment and management of assets of MAAT (Market Maker Agent). Pursuant to the terms of its appointment, the Market Maker Agent is required to:
(a) comply with all applicable law and policies of either ASIC, ASX, APRA or AUSTRAC;
(b) act in accordance with the instructions provided by the Manager;
(c) deal in a financial product by issuing, applying for, acquiring, varying or disposing financial products including securities on behalf of MAAT;
(d) receive all instructions including maximum number of Units the Manager is willing to create in any given day (subject to certain thresholds); and
(e) post daily bids and offers subject to parameters agreed with the Responsible Entity.
3.3 MAAT's investment strategy
MAAT's investment strategy is to invest in Australian quoted equities (long and short). MAAT
may also invest in exchange traded derivatives, cash and cash equivalent investments.
The investment strategy is Benchmark Unaware and there is no predetermined asset
allocation; rather, MAAT only invests when suitable opportunities are identified. As such, asset
exposures may vary significantly over time and without notice.
MAAT seeks to only invest in compelling opportunities to produce the targeted returns. To
identify these investment ideas, the Manager primarily employs fundamental, bottom-up
company research and the judgement of its experienced portfolio managers.
A key strategy of MAAT is to use short-selling which is a process designed to deliver
enhanced relative and risk-adjusted returns by increasing the gross market exposure of
MAAT.
From time to time, MAAT may borrow cash from an overdraft facility or use derivatives to
amplify its exposure to an asset or asset class.
MAAT's ability to produce investment returns will depend on the availability of assets that meet
MAAT's investment guidelines, the Australian equity market conditions and the effect of the
key risks identified in section 9 of the MAAT PDS.
All assets of MAAT will be located in Australia and denominated in Australian dollars.
The Manager has implemented a risk management framework with daily monitoring to
manage MAAT’s exposures within the asset classes and market exposure limits of MAAT.
The Manager may, by obtaining consent from the Responsible Entity, change MAAT’s
investment strategy, benchmark, and asset allocation ranges and limits, and in some cases
may do this without prior notice to unitholders of MAAT.
3.4 Quarterly distributions
The Responsible Entity intends to make quarterly distributions rather than annual dividend
payments, as are currently made by the Company. It is intended that MAAT unitholders will be
able to reinvest their distribution automatically into MAAT or have it paid directly to their bank
account.
3.5 Capital structure
As at the Implementation Date, MAAT's capital structure is proposed to be:
Units
44,956,003
As noted above, the number of Units on issue will not change by virtue of the Transaction,
however the number of unitholders of MAAT will increase (as per the number of Shareholders,
excluding Overseas Shareholders).
3.6 Rights attaching to Units
The rights attaching to Units will not be affected by the Transaction. A summary of the rights attaching to the Units is included in the comparison table set out in Section 2.7.
Full details of the rights attaching to the Units are set out in the MAAT Constitution, a copy of which may be obtained by contacting the Responsible Entity's office during normal business hours.
Section 1 of the MAAT PDS contains a broad summary of the rights, privileges and restrictions attaching to all Units.
3.7 Risk factors
Section 9 of the MAAT PDS contains a summary of the key risks associated with MAAT.
4. Additional information relating to the Company
4.1 Issued capital of the Company
There will be no change to the capital structure of the Company as a result of the Transaction.
As at the date of this Shareholder Booklet, the Company's capital structure is as follows:
Shares Options1
44,956,003 435,369
Note 1: Each Option is exercisable at $1.15 per Option, expiring on 15 November 2021.
As noted above, the number of Shares and Options on issue will not change by virtue of the Transaction. As required under ASX Listing Rule 7.22.3, the terms of the Options will be reorganised such that the exercise price of each Option will be reduced by the same amount as the capital amount returned in relation to each MA1 Share.
4.2 Rights attaching to Shares
The rights attaching to Shares will not be affected by the Transaction. A summary of the rights attaching to the Shares is included in the comparison table set out in Section 2.7.
Full details of the rights attaching to the Shares are set out in the Company Constitution, a copy of which may be obtained by contacting the Company's office during normal business hours.
4.3 Board of the Company
The Board currently comprises:
(a) Mr Paul Clitheroe - Independent Non-Executive Chairman;
(b) Mr Simon Shields - Non-Independent Non-Executive Director and an executive of the
Manager;
(c) Mr Suvan de Soysa - Independent Non-Executive Director; and
(d) Mr Paul Jensen - Independent Non-Executive Director.
4.4 Director's relevant interests in the Company
The table below indicates the securities in which the Directors have an interest prior to the Transaction and the number of MAAT Units that they will receive if the Transaction completes:
Pre-Transaction
Director Shares Options1 MAAT Units
Mr Paul Clitheroe 500,000 Nil Nil
Mr Simon Shields 400,001 200,000 Nil
Mr Suvan de Soysa 500,000 Nil Nil
Mr Paul Jensen Nil Nil Nil
Post- Transaction
Director Shares Options1 MAAT Units
Mr Paul Clitheroe 500,000 Nil 500,000
Mr Simon Shields 400,001 200,000 400,001
Mr Suvan de Soysa 500,000 Nil 500,000
Mr Paul Jensen Nil Nil Nil
Note 1: Each Option is exercisable at $1.15 per Option, expiring on 15 November 2021.
It is the intention of Mr Simon Shield to exercise all of the Options he holds prior to the Record Date.
4.5 Information concerning Shares
The highest and lowest recorded sale prices of Shares as traded on ASX during the 4 months prior to the date of this Shareholder Booklet, and the respective dates of those sales were:
Date Highest price Date Lowest price
17.03.2021 $1.46 30.11.2020 $1.28
4.6 Pro-forma financial position on completion of the Transaction
A copy of the Company's post-transaction pro-forma balance sheet is set out in Annexure A.
The pro-forma balance sheet assumes completion of the First Distribution (In-Specie) and is
based on the financial accounts of the Company as at 31 January 2021.
4.7 Changes to the obligations of the Company
If the Transaction successfully completes, MA1 will continue to operate as an unlisted
company and will remain subject to the Corporations Act, including the range of protections
afforded to shareholders under the Corporations Act.
In particular, the Company will fall into the definition of an “unlisted disclosing entity” for the
purposes of the Corporations Act. As such, the Company will continue to be required to
maintain a continuous disclosure regime. The statutory duty of disclosure for an unlisted
disclosing entity is similar in content to the disclosure obligations of a listed entity, however
disclosure will be made by uploading the information to the Company's website (in place of
lodging a document with ASIC) instead of the Company's ASX platform. Any information
required to be released as continuous disclosure will be available at
http://monashinvestors.com/.
5. Resolution 1 - Amendment to the Company Constitution
5.1 Summary of Resolution 1
Resolution 1 seeks Shareholder approval to amend the Company Constitution to allow
implementation of the Transaction.
If Resolution 1 is passed, the Company Constitution will be amended as set out in Section 5.3
below with immediate effect.
Resolution 1 is a special resolution and therefore requires approval of 75% of the votes cast
by Shareholders present and eligible to vote (in person, by proxy, by attorney or, in the case of
a corporate Shareholder, by a corporate representative).
5.2 General
Under section 136(2) of the Corporations Act, a company may modify or repeal its constitution
or a provision of its constitution by special resolution of Shareholders.
While the Company considers that the current general provisions in the Company Constitutionare sufficient for the implementation of the Transaction, the Board considers that the followingamendments of the Company Constitutional should be made:
(a) inclusion of a specific reference to a reduction of capital effected by the in speciedistribution of units in a trust;
(b) inclusion of a statement that, on occurrence of an in-specie distribution, theShareholders are deemed to have agreed to become unitholders of the relevant trustand to be bound by the relevant trust deed (in the case of the Transaction, being,respectively, the MAAT Units and the MAAT Constitution); and
(c) inclusion of provisions that will, in the case of the Transaction, empower the Companyor any of the Directors as the agent of each Shareholder to execute any transfer ofUnits, or any other document required to give effect to the distribution of Units to thatShareholder.
As such, Resolution 1 seeks the approval of Shareholders to modify the Company Constitution
by inserting a new Rule 2.8 as set out in Section 5.3 below.
A copy of the amended constitution is available for review by Shareholders at the office of the
Company and can also be sent to Shareholders upon request to the Company Secretary.
Shareholders are invited to contact the Company if they have any queries or concerns.
The Board recommends that Shareholders vote in favour of Resolution 1.
5.3 Proposed amendments to the Company Constitution
Currently, the Company Constitution does not expressly state that the Company may reduce its share capital by a reduction of capital in accordance with Division 1 of Part 2J.1 of the Corporations Act. Nevertheless, the provisions of the Corporations Act apply.
To clarify the powers of the Company, the Directors consider it beneficial to amend the Company Constitution to specifically provide for both a reduction in capital and profits reserve, and the method of the reduction, being by way of distribution of shares or securities in another entity, in this case MAAT.
In addition to above, the proposed amendments will state that should the Company complete an in-specie distribution and, as consideration, distribute securities in another entity (in this case MAAT) to the Shareholders:
(a) those Shareholders agree to become unitholders of MAAT and to be bound by theMAAT Constitution; and
(b) each of the Shareholders appoints the Company or any of the Directors as its agent toexecute any transfer of Units, or any other document required to give effect to thedistribution of Units to that unitholder.
Accordingly, the Company is seeking Shareholder approval to the amendment of the
Company Constitution to clarify the Company's powers by the insertion of new Rule 2.8 as
follows:
Insert a new Rule 2.8:
"2.8 Reductions of capital and buy-backs
(a) Subject to the Applicable Law, the Company may:
(i) reduce its capital; and
(ii) buy-back shares in itself,
on any terms and at any time.
(b) The Company may reduce its capital in any way, including without limitation
by any or all of the payment of cash, the issue of Shares, the grant of options
or other securities, the transfer of shares or any other securities in any other
body corporate or the transfer of units or any other securities in any trust or
the transfer of any other assets.
(c) If a reduction of capital of the Company includes an issue or transfer of shares
in a body corporate or units in a trust, each member:
(i) agrees to become a member of that body corporate or trust; and
(ii) in the case of a transfer, appoints the Company and each Director as
its agent to execute an instrument of transfer or other document
required to transfer those shares in a body corporate or units in the
trust to that member."
6. Resolution 2 - Approval for an equal reduction of capital and FirstDistribution (In-Specie)
6.1 Summary of Resolution
Resolution 2 seeks Shareholder approval to enable the Company to reduce its capital by the
transfer of the Listed Assets and Cash Transfer Amount to MAAT and the subsequent
distribution of specific assets to Shareholders, being MAAT Units.
Resolution 2 is conditional on the approval of all other Resolutions in the Notice. If all of the
Resolutions are passed, the Company's capital will be reduced by way of the First Distribution
(In-Specie) described in Section 6.2 below.
Resolution 2 is an ordinary resolution.
6.2 Section 256C of the Corporations Act
The proposed reduction of capital by way of the First Distribution (In-Specie) is an equal
capital reduction.
Under section 256B of the Corporations Act, the Company may only reduce its capital if it:
(a) is fair and reasonable to Shareholders as a whole;
(b) does not materially prejudice the Company’s ability to pay its creditors; and
(c) is approved by Shareholders in accordance with section 256C of the Corporations Act.
The Independent Directors believe that the Transaction is fair and reasonable to Shareholders
as a whole and does not materially prejudice the Company’s ability to pay its creditors.
Under the proposed reduction of capital, each Shareholder is treated equally and in the same
manner since the terms of the reduction of capital are the same for each Shareholder. The
First Distribution (In-Specie) is on a pro rata basis, and the proportionate ownership interest of
each Shareholder in the Company remains the same before and after the Transaction. They
will also have the same proportionate unitholding in MAAT after the Transaction.
Further, the Independent Directors consider that the Transaction will not result in the Company
being insolvent at the time of or after the First Distribution (In-Specie).
The Directors have commissioned the Independent Expert to prepare a report on whether the Transaction (including the First Distribution (In-Specie)) is, on balance, collectively fair and reasonable to the Shareholders. The Independent Expert Report is attached to this Shareholder Booklet at Annexure B.
The Independent Expert concludes that the Transaction is fair and reasonable to Shareholders.
In accordance with the Corporations Act:
(a) the proposed reduction is an equal reduction and requires approval by an ordinary
resolution passed at a general meeting of Shareholders;
(b) this Shareholder Booklet and previous ASX announcements set out all information
known to the Company that is material to the decision on how to vote on Resolution 2;
and
(c) the Company has lodged with ASIC a copy of this Shareholder Booklet.
6.3 Product disclosure statement pursuant to the offer to transfer MAAT Units
Under the Corporations Act, an offer of securities generally requires disclosure to investors
through a disclosure document, typically in the form of a prospectus or product disclosure
statement.
The Corporations Act restricts:
(a) the Company from disposing of the MAAT Units to its Shareholders by way of an in-specie distribution without issuing a disclosure document; and
(b) the Shareholders from on-selling their MAAT Units within the first 12 months after receiving them under an in-specie distribution where a disclosure document has not accompanied the original offer.
The invitation to Shareholders to vote on this Resolution constitutes an offer to transfer MAAT Units to Shareholders pursuant to an in-specie distribution.
The Company has obtained ASIC relief from the requirement to issue a disclosure document in conjunction with this Shareholder Booklet on the basis that each Shareholder will be sent a copy of the MAAT PDS.
6.4 Capital Reduction – General
The Corporations Act and the ASX Listing Rules set out the procedure and timing for a capital
reduction. Refer to the Important Dates section on page 4 for an indicative timetable in respect
of the Transaction. The alteration to the Company’s capital and the First Distribution (In-
Specie) will become effective from the Effective Date. The Record Date for the First
Distribution (In-Specie) is proposed to be 2 June 2021, subject to the Resolutions being
approved and satisfaction of the In-Specie Conditions.
If the capital reduction proceeds, Shareholders will receive a pro rata entitlement to MAAT
Units and each Shareholder's name will be entered on the register of unitholders of MAAT with
each Shareholder having deemed to have consented to becoming a MAAT unitholder and
being bound by the MAAT Constitution (refer to Section 5). A Shareholder's entitlement to the
number of MAAT Units to be distributed to it is to be based on the number of Shares held at
the Record Date.
Due to the outstanding Options on issue in the Company, it is not clear at the date of this
Shareholder Booklet how many Shares will be on issue at the Record Date nor therefore the
number of MAAT Units which will be distributed under the First Distribution (In-Specie). If no
Options are exercised prior to the Record Date, a total of 44,956,003 MAAT Units will be
distributed to the Shareholders on a 1:1 ratio (one Unit for one Share).
6.5 ASX Announcements
The Company is a "disclosing entity" for the purposes of the Corporations Act. As such, the Company is subject to regular reporting and disclosure obligations, which requires the Company to disclose to the ASX any information which it is or becomes aware of concerning the Company and which a reasonable person would expect to have a material effect on the price or value of the Company.
These documents are available for viewing and download on the Company's website on http://monashinvestors.com/ or the ASX website on www.asx.com.au/ under the ASX code "MA1".
The Company will provide updates on the Transaction to Shareholders at the time the First Distribution (In-Specie) takes place via lodgement of an ASX market announcement and in the despatch of holding statements to Shareholders.
6.6 Other material information
There is no information known to the Company that is material to the making of a decision by
a Shareholder on how to vote on Resolution 2 other than as disclosed in this Shareholder
Booklet (including annexures) and information that the Company has announced on the ASX's
platform or previously otherwise disclosed to Shareholders.
6.7 Lodgement
The Company has lodged a copy of this Shareholder Booklet with ASIC in accordance with
section 256C(5) of the Corporations Act.
6.8 Independent Directors' recommendation
The Independent Directors believe that the Transaction is in the best interests of Shareholders and recommend that the Shareholders vote in favour of Resolution 2 as, in the opinion of the Independent Directors, the benefits of the proposed Transaction outweigh the disadvantages (see Section 2.2 of this Explanatory Memorandum).
The Independent Expert has opined that the Transaction is fair and reasonable to Shareholders.
7. Resolution 3 - Amendment to the Existing IMA
7.1 Summary of Resolution 3
Resolution 3 seeks Shareholder approval to amend the Existing IMA to allow the Transaction.
Resolution 3 is conditional on the approval of all other Resolutions in the Notice. If all of the
Resolutions are passed, the Existing IMA will be amended as set out in Section 7.2 below.
Resolution 3 is an ordinary resolution.
7.2 Proposed amendment
On 23 February 2016, the Company and the Manager entered into the Existing IMA with respect to the management of the Company's portfolio.
The initial term of the agreement was ten years, with automatic five year extensions, unless terminated earlier in accordance with its provisions. On its admission to the Official List of the ASX, the Company was granted a waiver from ASX Listing Rule 15.16(b) to allow the 10 year term of the Existing IMA. A condition of this waiver was that any variation to the Existing IMA would need to be approved by Shareholders.
The Company and the Manager propose to vary the Existing IMA to allow for the transfer of the Listed Assets from the Company to MAAT, on the basis that the Responsible Entity enters into the New IMA with the Manager. Management of the Listed Assets will then take place under the New IMA. A summary of the key terms of the New IMA is set out in Section 3.1. The 30 June 2021 financial statements of the Company will be audited and subsequent to the audit, the Manager's performance fee (if any) will be paid in accordance with the Existing IMA.
Management of the Unlisted Assets held in the Company will continue under the Existing IMA, as varied to:
(a) allow for the transfer of the Listed Assets to MAAT; and
(b) change the investment strategy for the Company given that, if the Transaction is successful, the investment strategy will be amended to reflect the Company's intention that it will only hold the Unlisted Assets until such time as the value from these assets has been realised.
Resolution 3 seeks approval from Shareholders to enable the Company to enter into a
variation to the Existing IMA, as set out above.
8. Resolution 4 - Removal from the Official List of the ASX
8.1 Summary
The Company has applied to ASX requesting that, subject to the successful implementation of
the Transaction, ASX remove the Company from the Official List under ASX Listing Rule
17.11. As is its usual practice, ASX has imposed a requirement under ASX Listing Rule 17.11
and Guidance Note 33 Removal of Entities from the ASX Official List, that the Company obtain
Shareholder approval to the proposed delisting.
Resolution 4 seeks Shareholder approval under ASX Listing Rule 17.11 for the Company's
removal from the Official List.
Resolution 4 is conditional on the approval of all other Resolutions in the Notice. If all of the
Resolutions are passed, and subject to the successful completion of the Transaction and
fulfilment of the conditions imposed by ASX, the Company will be removed from the Official
List and the Company's Shares will cease to be traded on ASX. If any of the Resolutions are
not passed, the Company will retain its holding of the Listed Assets, the Transaction will not
proceed, the Shareholders will not be issued Units, the Company will not be delisted from the
Official List of the ASX and MAAT will not proceed with its application to be admitted to
Trading Status on the ASX.
Resolution 4 is a special resolution and therefore requires approval of 75% of the votes cast byShareholders present and eligible to vote (in person, by proxy, by attorney or, in the case of acorporate Shareholder, by a corporate representative).
If Resolution 4 is passed and a Shareholder considers the removal of the Company from theOfficial List to be contrary to the interests of Shareholders as a whole or oppressive to, unfairlyprejudicial to, or unfairly discriminatory against, a Shareholder or Shareholders, it may apply tothe Court for relief. The Court may then make any order that it considers appropriate in relationto the Company, including but not limited to orders regulating the conduct of the Company'saffairs in the future, requiring the Company to be wound up or requiring that the Company'sconstitution be modified or repealed.
The Company has not implemented a buy-back or other facility to allow Shareholders to sell orredeem their Shares, however Shareholders will be able to sell their Shares as usual on-marketon ASX prior to the removal of the Company from the Official List.
8.2 Conditions to removal
ASX has granted the Company's request to be removed from the Official List pursuant to ASX
Listing Rule 17.11, subject to compliance with the following conditions:
(a) the Responsible Entity in its capacity as responsible entity of MAAT makes anapplication and is conditionally approved for the MAAT Units to be admitted to TradingStatus as an AQUA Product Series under ASX Operating Rules Schedule 10A.3.1;
(b) the Shareholders approve the following:
(i) a resolution by the necessary majority (excluding any votes cast by theResponsible Entity and its associates) to convert the quotation of its securitiesadmitted under the ASX Listing Rules to admission as an AQUA Product Seriesadmitted to Trading Status in accordance with ASX Operating Rule 10A.3.1(ca);
(ii) an ordinary resolution to carry out the First Distribution (In-Specie) on a pro ratabasis of 1 MAAT Unit for 1 Share held on a prescribed record date (being theRecord Date);
(iii) a special resolution to remove the Company from the Official List of ASX as anASX Listing;
(c) the Notice includes a statement, in a form and substance satisfactory to ASX, settingout:
(i) the relevant timetable, which is acceptable to ASX, and which will be followedfor the removal of MA1 from the Official List and the admission of MAAT toTrading Status as an AQUA Product Series under the AQUA rules;
(ii) the removal from the Official List will not take place any earlier than one monthafter Shareholders have approved the removal;
(iii) the relevant information, to ASX's satisfaction, prescribed in section 2.11 of ASXGuidance Note 33;
(iv) the proposed outcome for Shares of the conversion of Shares held by them inan ASX Listing admitted under the ASX Listing Rules to units in an AQUAProduct Series admitted to Trading Status;
(v) the differences between the AQUA market and the listing regime application toMA1 as an ASX listing; and
(vi) where further information about the AQUA market can be found on ASX'swebsite.
(d) the Company provides ASX with a legal opinion from its external legal counsel, in a formsatisfactory to ASX, that the proposed First Distribution (In-Specie) as identified in thisShareholder Booklet will be legally effective, including being in accordance with theConstitution and the MAAT Constitution.
8.3 Reasons for seeking removal from the Official List
The proposed Transaction, and subsequent de-listing of the Company from ASX, is
considered by the Board to be in the best interests of the Company in light of the low level of
trading of the Shares on ASX (both in frequency and overall volume) and the Board’s view that
the current market capitalisation of the Company does not reflect the underlying asset value of
the Company.
The Responsible Entity intends to lodge the MAAT PDS with ASIC on or around 6 April 2021.
The Company notes that it is not guaranteed that ASX will approve the Admission Application.
9. Resolution 5 - Admission of MAAT Units to Trading Status
9.1 Summary of Resolution 5
Resolution 5 seeks Shareholder approval for the Responsible Entity to seek admission of
MAAT's Units to Trading Status.
Resolution 5 is conditional on the approval of all other Resolutions in the Notice. If all of the
Resolutions are passed, and subject to the successful completion of the Transaction and
fulfilment of any listing conditions imposed by ASX, MAAT 's Units will be admitted to Trading
Status.
Resolution 5 is an ordinary resolution.
9.2 Reasons for MAAT to seek admission to Trading Status
As noted in Section 8.3 above, the proposed Transaction and subsequent admission of MAAT
to Trading Status, is considered by the Board to be in the best interests of the Company in
light of the low level of trading of the Shares on ASX (both in frequency and overall volume)
and the Board’s view that the current market capitalisation of the Company does not reflect the
underlying asset value of the business. The Board believes that the admission of MAAT Units
to Trading Status on ASX will provide better liquidity for unitholders, given the differences in
structure of the entity.
The Responsible Entity intends to lodge the MAAT PDS with ASIC and ASX on or around 6
April 2021. The Company notes that it is not guaranteed that ASX will approve the Admission
Application.
10. Definitions
In this Shareholder Booklet, words importing the singular include the plural and vice versa.
$ means Australian Dollars.
AEST means Australian Eastern Standard Time, being the time in Sydney,
New South Wales.
AQUA Rules means the rules issued by the ASX which apply to AQUA products, as
supplemented, amended, varied, or replaced from time to time.
ASX means the ASX Limited (ABN 98 008 624 691) and, where the context
permits, the Australian Securities Exchange operated by ASX Limited.
Benchmark Unaware means an investment strategy that is applied without regard to the
composition of a market benchmark index, such as the S&P ASX300.
Board means the board of Directors.
Cash Reserve has the meaning given in Section 1.3 being a cash amount retained by
the Company comprised of estimates of the Second Distribution
(Special Dividend) and the tax liabilities, operating costs (for the 2021
and 2022 financial years) and winding up costs of the Company plus a
contingency amount for unforeseen costs.
Cash Transfer Amount has the meaning given in Section 1.3.
Chair means the person appointed to chair the Meeting of the Company
convened by the Notice.
Company means Monash Absolute Investment Company Limited (ACN 610 290
143.
Company Constitution means the constitution of the Company as at the date of the Meeting.
Company Liabilities means the outstanding liabilities of the Company on the Implementation
Date (including, for the avoidance of doubt, the performance fee to be
paid to the Manager for the performance fee period up to 30 June 2021)
and an estimate of the tax liability to be paid by the Company for the
financial year ending 30 June 2021 and including an estimate of the
liabilities to be paid by the Company for the 2021 and 2022 financial
years including wind up costs.
Corporations Act means the Corporations Act 2001 (Cth).
Costs means any cost, charge, disbursement, expense, outgoing, fee, tax or
commission.
Director means a director of the Company.
Effective Date means 28 May 2021, as set out in the timetable in the Important Dates
section of this Shareholder Booklet on page 4.
Existing IMA means the investment management agreement between the Company
and the Manager dated 23 February 2016.
Explanatory
Memorandum
means the explanatory memorandum which forms part of this
Shareholder Booklet.
First Distribution (In-
Specie)
has the meaning given in Section 1.4(f).
Implementation Date means 31 May 2021, as set out in the timetable in the Important Dates
section of this Shareholder Booklet on page 4, being the date of
completion of acquisition of the Listed Assets and Cash Transfer
Amount and the First Distribution (In-Specie).
In-Specie Conditions has the meaning given in Section 2.1(b).
Independent Directors means the independent non-executive directors of the Company being
Paul Clitheroe, Suvan de Soysa and Paul Jensen.
Independent Expert means BDO Corporate Finance (East Coast) Pty Ltd ACN 050 038 170.
Listed Assets has the meaning given in Section 1.3.
Listing Rules means the listing rules of ASX.
MAAT Assets means all investments, assets, capital, income, property and rights of
MAAT, including proceeds of redemption of Units which have not yet
been paid and any unpaid distributions.
MAAT Constitution means the constitution of MAAT as at the date of the Meeting.
MAAT Liabilities means all liabilities of MAAT, including liabilities accrued and unpaid
and provisions which the Responsible Entity reasonably believes, in
accordance with generally accepted accounting principles and
applicable accounting standards, should be made when determining the
liabilities of MAAT, but excluding all liabilities of the Responsible Entity
to any unitholder (other than an unpaid distribution amount) and all
amounts representing the value of the rights of a unitholder (other than
an unpaid distribution amount) payable in respect of any redemption of
Units not then requested and accepted by the Responsible Entity and
regardless of whether the Units are characterised as equity or debt in
the accounts of MAAT.
MAAT PDS has the meaning given in Section 2.1(e).
Manager means Monash Investors Pty Ltd (ABN 67 153 180 333).
Market Maker Agent means Macquarie Securities (Australia) Limited.
Meeting means the meeting of Shareholders convened by the Notice.
NAV means the value of the MAAT Assets less the MAAT Liabilities
excluding application money in respect of applications that have not
been accepted by the Responsible Entity.
New IMA means the agreement to be entered into by the Manager and the
Responsible Entity in its capacity as responsible entity of MAAT for
management of the Listed Assets.
Notice means the Notice of General Meeting of Shareholders which forms part
of this Shareholder Booklet.
Option means an option to acquire a Share.
Overseas Shareholders means a Shareholder with a registered address outside of Australia.
Proxy Form means the proxy form accompanying this Shareholder Booklet.
Resolution means a resolution referred to in the Notice.
Rule means a rule of the Company Constitution.
Schedule means a schedule to this Shareholder Booklet.
Second Distribution
(Special Dividend)
has the meaning given in Section 1.4(g).
Section means a section of this Shareholder Booklet.
Securities means any equity securities of the Company (including Shares and/or
Options).
Share means a fully paid ordinary share in the capital of the Company.
Shareholder means the holder of a Share.
Shareholder Booklet means the Notice and the Explanatory Memorandum.
Third Distribution
(Capital Return)
has the meaning given in Section 1.4.
Trading Day has the meaning given in the Listing Rules.
Trading Status means authorisation by ASX for the Units (being the AQUA Products, as
that term is defined in the ASX Operating Rules) to be traded on the
market operated by ASX.
Transaction means the proposed restructure of the Company by way of transfer of
the Listed Assets and Cash Transfer Amount to MAAT and First
Distribution (In-Specie) and Second Distribution (Special Dividend) to
the Shareholders.
Transaction Costs means, when calculating, as at any date:
(a) the application price of MAAT Units, the amount (which may be
calculated as a percentage of the value of the MAAT Assets)
calculated and fixed by the Responsible Entity from time to time
to represent the Responsible Entity’s estimate of the total Costs
that would be incurred to buy the entire investments of MAAT
on that date (excluding the purchase price of the investments);
and
(b) the withdrawal price, the amount (which may be calculated as a
percentage of the value of the MAAT Assets) calculated and
fixed by the Responsible Entity from time to time to represent
the Responsible Entity’s estimate of the total Costs that would
be incurred to sell the entire investments of MAAT on that date,
provided that subject to the Corporations Act the Responsible Entity
may in connection with any particular application or request for
redemption of Units deem these costs to be a lesser sum or zero.
Unlisted Assets has the meaning given in Section 1.3.
11. Notice of general meeting and voting and attendance information
Monash Absolute Investment Company Limited ACN 610 290 143
(Company)
Notice of General Meeting
Notice is hereby given that a General Meeting of Shareholders of Monash Absolute Investment
Company Limited ACN 610 290 143 will be held virtually on Monday, 10 May 2021 at 10:00am (AEST)
(Meeting).
The Explanatory Memorandum provides additional information on the matters to be considered at the
Meeting. The Explanatory Memorandum and the Proxy Form comprise part of this Notice (together,
called the Shareholder Booklet).
Terms and abbreviations used in this Shareholder Booklet are defined in Section 11.
Agenda
1 Resolution 1 – Amendment to the Company Constitution
To consider and, if thought fit, to pass with or without amendment, as a special resolution the
following:
"That pursuant to and in accordance with section 136(2) of the Corporations Act and for all
other purposes, the Company Constitution is amended with immediate effect by making the
amendments specified in the Explanatory Memorandum which accompanied the Notice of
Meeting."
2 Resolution 2 - Approval for an equal reduction of capital and First Distribution (In-Specie)
To consider and, if thought fit, to pass with or without amendment, as an ordinary resolution
the following:
“That, subject to and conditional on all other Resolutions being passed, for the purposes of
sections 256B and 256C of the Corporations Act and for all other purposes, the issued share
capital of the Company be reduced by the Company making a pro rata distribution in specie of
fully paid ordinary units in MAAT to all holders of ordinary shares in the Company at the
Record Date and on the terms and conditions set out in the Explanatory Memorandum which
accompanied the Notice of Meeting.”
3 Resolution 3 – Amendment to the Existing IMA
To consider and, if thought fit, to pass with or without amendment, as an ordinary resolution
the following:
'That, subject to and conditional on all other Resolutions being approved, approval is given for
the Company to amend the Existing IMA to allow the Transaction on the terms and conditions
in the Explanatory Memorandum."
4 Resolution 4 – Removal from the Official List of the ASX
To consider and, if thought fit, to pass with or without amendment, as a special resolution the
following:
"That, subject to and conditional on all other Resolutions being approved and completion of
the First Distribution (In-Specie), pursuant to ASX Listing Rule 17.11 and for all other purposes
approval is given for the Company to be removed from the Official List of the ASX on the
terms and conditions set out in the Explanatory Memorandum which accompanied the Notice
of Meeting.''
5 Resolution 5 – Admission of MAAT Units to Trading Status
To consider and, if thought fit, to pass with or without amendment, as an ordinary resolution
the following:
"That, subject to and conditional on all other Resolutions being approved and completion of
the First Distribution (In-Specie), pursuant to ASX Operating Rule 10A.3.1(ca), approval is
given for the conversion of MA1 Shares admitted under the ASX Listing Rules to admission of
MAAT Units to Trading Status on the terms and conditions set out in the Explanatory
Memorandum which accompanied the Notice of Meeting.''
Voting exclusions
Pursuant to the Listing Rules, the Company will disregard any votes cast in favour of Resolution 2 by
or on behalf of the acquirer of the asset or any person who will obtain a material benefit as a result of
the transaction (except a benefit solely by reason of being a holder of Shares in the Company) or an
associate of that person or persons.
However, this does not apply to a vote cast in favour of Resolution 2 by:
(a) a person as proxy or attorney for a person who is entitled to vote, in accordance with
directions given to the proxy or attorney to vote on the Resolution in that way; or
(b) the Chair as proxy or attorney for a person who is entitled to vote, in accordance with a
direction given to the Chair to vote on the Resolution as the Chair decides; or
(c) a holder acting solely in a nominee, trustee, custodial or other fiduciary capacity on behalf of a
beneficiary provided the following conditions are met:
(i) the beneficiary provides written confirmation to the holder that the beneficiary is not
excluded from voting, and is not an associate of a person excluded from voting, on the
Resolution; and
(ii) the holder votes on the Resolution in accordance with directions given by the
beneficiary to the holder to vote in that way.
The Company will disregard any votes cast in favour of Resolutions 5 by or on behalf of the
Responsible Entity (or any of its associates).
BY ORDER OF THE BOARD
Mr Paul Clitheroe AM
Non-Executive Chairman
Monash Absolute Investment Company Limited
Dated: 31 March 2021
Information required under Guidance Note 33
In accordance with section 2.11 of Guidance Note 33, Shareholders can find the following information
with respect to the proposed delisting of the Company from the Official List:
the reasons why the approval is being sought and what will happen if the approval is given or
not given is set out in Section 8.1 of this Shareholder Booklet;
details of any other conditions that ASX requires to be satisfied before it will act on the request
for removal from the Official List are set out in Section 8.2 of this Shareholder Booklet;
details of any voting exclusions applied by ASX are set out in this Notice on page 45;
the Company's reasons for seeking removal from the Official List are set out in Section 8.3 of
this Shareholder Booklet;
the consequences for the Company and its Shareholders if the Company is removed from the
Official List, including whether or not it will become an unlisted disclosing entity under the
Corporations Act following its removal are set out in Section 4 of this Shareholder Booklet
(refer to Section 4.7 for information relating to the Company becoming an unlisted disclosing
entity);
the advantages and disadvantages of removal from the Official List compared to the
advantages and disadvantages of remaining listed on ASX are set out in Section 2.2 of this
Shareholder Booklet;
as noted in Section 8.1 of this Shareholder Booklet, the Company does not propose to
implement a buy-back or other facility to allow Shareholders to sell or redeem their Shares;
an explanation of the remedies that Shareholder may pursue under Part 2F.1 of the
Corporations Act is set out in Section 8.1 of this Shareholder Booklet.
Voting rights
Explanatory Memorandum
The Explanatory Memorandum and the annexures accompanying this Notice are incorporated in and
comprise part of this Notice and should be read in conjunction with this Notice.
Who may vote
In accordance with Regulation 7.11.37 of the Corporations Regulations the Company (as convenor of
the Meeting) has determined that persons entitled to attend and vote at the Meeting will be those
persons set out in the register of Shareholders as at 7:00pm (AEST) on 8 May 2021.
Proxies
A Shareholder entitled to attend the Meeting and vote, is entitled to appoint a proxy to attend and vote
on behalf of that Shareholder at the Meeting.
(d) A proxy need not be a Shareholder.
(e) If the Shareholder is entitled to cast two or more votes at the Meeting, the Shareholder
may appoint two proxies and may specify the proportion or number of the votes which
each proxy is appointed to exercise. If the Shareholder appoints two proxies and the
appointment does not specify the proportion or number of votes each proxy may
exercise, each proxy may exercise half of the votes held by that Shareholder.
(f) If the Shareholder appoints only one proxy, that proxy is entitled to vote on a show of
hands. If a Shareholder appoints two proxies, only one proxy is entitled to vote on a
show of hands.
(g) Where two proxies are appointed, any fractions of votes resulting from the
appointment of two proxies will be disregarded.
(h) A Proxy Form accompanies this Notice.
(i) Unless the Shareholder specifically directs the proxy how to vote, the proxy vote as he
or she thinks fit, or abstain from voting.
(j) If a Shareholder wishes to appoint a proxy, the Shareholder should complete the
Proxy Form and comply with the instructions set out in that form relating to lodgement
of the form with the Company.
(k) The Proxy Form must be signed by the Shareholder or his or her attorney duly
authorised in writing or, if the Shareholder is a corporation, either signed by an
authorised office or attorney of the corporation or otherwise signed in accordance with
the Corporations Act.
(l) If any attorney or authorised officer signs the Proxy Form on behalf of a Shareholder,
the relevant power of attorney or other authority under which it is signed or a certified
copy of that power or authority must be deposited with the Proxy From.
(m) The Proxy Form (together with any relevant authority) must be received by no later
than 10:00am (AEST) on 8 May 2021).
(n) The completed Proxy Form may be:
Mailed to the address on the Proxy Form; or
Faxed to Monash Absolute Investment Company Limited, Attention
Company Secretary, on facsimile +61 2 9290 9655.
Virtual participation
In accordance with Corporations (Coronavirus Economic Response) Determination (No. 1) 2020 and
to facilitate Shareholder participation, the Chairman has determined that Shareholders will have the
opportunity to participate in the Meeting through an online platform.
Shareholders who wish to join the Meeting may do so from their computer or their mobile device, by
entering the URL in their browser: https://web.lumiagm.com; or
If you choose to participate in the Meeting online, you can log in to the meeting by entering:
the meeting ID for the online Meeting which is 341-400-670;
your username is your Voting Access Code (VAC), which is located the first page of your Proxy
Form; and
your password, which is the postcode registered to your holding if you are an Australian
Shareholder. Overseas Shareholders will need to enter the three-character country code e.g.
New Zealand - NZL of their registered holding address. A full list of country codes can be found
at the end of the user guide.
You will be able to view the Meeting live, lodge a direct vote in real time and ask questions online.
Shareholders participating in the Meeting will be able to cast direct votes between the commencement
of the Meeting (10:00am AEST on 10 May 2021) and the closure of voting as announced by the
Chairman during the Meeting.
More information regarding online participation at the Meeting (including how to vote) and ask
questions online during the Meeting) is available in the User Guide. The User Guide is attached to this
Notice and will be lodged with the ASX and will also be available from our website.
Corporate Representative
Any corporate Shareholder who has appointed a person to act as its corporate representative at the
Meeting should provide that person with a certificate or letter executed in accordance with the
Corporations Act authorising him or her to act as that company's representative. The authority must be
sent to the Company and/or registry at least 24 hours in advance of the Meeting.
Page 51
Annexure A – Pro-forma balance sheet of the Company (post-Transaction)
Pro-forma Balance Sheet
This Pro-forma Balance Sheet has been prepared to demonstrate the impact of the steps that will be
undertaken to complete the restructure. The final figures are not available at this time, as a number of
key items are unknown as they are dependent on the value of the investment portfolio on the day of
the restructure.
This Pro-forma is based on the 31 January 2021 Balance sheet, and all calculations are based on the
value of the investment portfolio as at 31 January 2021.
The known items are:
Payment of the 2020 Income Tax, $2.3m (paid in February 2021)
Payment of the 13c dividend declared with the Half Year Result, $5.8m (to be paid in April
2021)
The net impact of the current receivables and payables as at 31 January 2021, $1.3m
(consisting mainly of unsettled trades as at 31 January).
The unknown items are:
Future Tax Liability – this will only be known on the day of the restructure when the final value of the
investment portfolio and therefore the size of the investment gains are known
Second Distribution – the second distribution will be a dividend and is being paid to fully attach all
available franking credits and is therefore dependent on the size of the Future Tax Liability
Performance Fee to the Manager – this is the performance fee due to be paid to the manager on the
portfolio up until the time of the restructure. This is accrued in the NTA but will only be known based
on the value of the investment portfolio on the day of the restructure.
The final item is the level of cash that will be left behind to cover the running costs of MA1 for the next
2 years. An amount of $850,000 has been provided. Upon the realisation of the Unlisted Assets it is
anticipated there will be a final dividend to Shareholders on the wind up of the Company (Third
Distribution (Capital Return)), which is expected to occur by no later than 30 June 2022.
A$000's
MA1 Unaudited 31-01-2021 Adjustments MAAT MA1 Proforma
Cash and cash equivalents 19,871 -16,930 2,091 850 LISTED Financial Assets 53,070 -7,724 45,346 0 UNLISTED Financial Assets 1,527 0 0 1,527 Deferred tax assets 29 -14 0 15 Other current assets 56 -31 0 24 Total assets 74,553 -24,699 47,438 2,417
LISTED Financial Assets 4,022 0 4,022 0 Tax Liabilities 5,660 -5,688 0 -29
Page 52
Other payables 5,498 -5,498 0 0 Total Liabilities 15,181 -11,187 4,022 -29
Net Assets 59,372 -13,512 43,415 2,445
Shareholders Funds' 59,372 -13,569 43,415 2,388
Adjustments to the Balance sheet at 31 January 2021
The value of the Listed Financial Assets declines by the size of the Second Distribution in order to
raise the required cash to fund the distribution.
Tax Liabilities decline by the amount of the 2020 income tax and the payment of the Future Income
Tax Liability.
Other Payables decline from the payment of the performance fee and the discharge of all outstanding
current liabilities as at 31 January 2021.
Shareholders’ funds decline due to the payment of the 13c dividend declared with the Half Year Result
and the future Payment of the Second Distribution.
The net effect of all of these items is a reduction in Cash. The result is that MAAT is left holding all of
the listed investments and an amount of cash, and MA1 is left with $850,000 to cover operating
expenses and the unlisted investments.
Page 53
Annexure B - Independent Expert's Report
.
INDEPENDENT EXPERT REPORT
Monash Absolute Investment Company Limited In relation to the proposed restructure of Monash Absolute Investment Company Limited into an Exchange Traded Managed Fund 31 March 2021
BDO Corporate Finance (East Coast) Pty Ltd ABN 70 050 038 170 AFS Licence No. 247 420 is a member of a national association of independent entities which are all members of BDO (Australia) Ltd ABN 77 050 110 275, an Australian company Limited by guarantee. BDO Corporate Finance (East Coast) Pty Ltd and BDO (Australia) Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards legislation.
Tel: +61 2 9251 4100 Fax: +61 2 9240 9821 www.bdo.com.au
Level 11, 1 Margaret Street Sydney NSW 2000 Australia
FINANCIAL SERVICES GUIDE Dated: 31 March 2021
This Financial Services Guide (‘FSG’) helps you decide whether to use any of the financial services offered by BDO Corporate Finance (East Coast) Pty Ltd (‘BDO Corporate Finance, we, us, our’).
The FSG includes information about:
Who we are and how we can be contacted;
The services we are authorised to provide under our Australian Financial Services Licence, Licence No: 247420
Remuneration that we and/or our staff and any associates receive in connection with the financial services
Any relevant associations or relationships we have
Our complaints handling procedures and how you may access them.
FINANCIAL SERVICES WE ARE LICENSED TO PROVIDE
We hold an Australian Financial Services Licence which authorises us to provide financial product advice to retail and wholesale clients about securities and certain derivatives (limited to old law securities, options contracts and warrants). We can also arrange for customers to deal in securities, in some circumstances. Whilst we are authorised to provide personal and general advice to retail and wholesale clients, we only provide general advice to retail clients.
Any general advice we provide is provided on our own behalf, as a financial services licensee.
GENERAL FINANCIAL PRODUCT ADVICE
Our general advice is typically included in written reports. In those reports, we provide general financial product advice that is prepared without taking into account your personal objectives, financial situation or needs. You should consider the appropriateness of the general advice having regard to your own objectives, financial situation and needs before you act on the advice. Where the advice relates to the acquisition or possible acquisition of a financial product, you should also obtain a product disclosure statement relating to the product and consider that statement before making any decision about whether to acquire the product.
FEES, COMMISSIONS AND OTHER BENEFITS THAT WE MAY RECEIVE
We charge fees for providing reports. These fees are negotiated and agreed to with the person who engages us to provide the report. Fees will be agreed on an hourly basis or as a fixed amount depending on the terms of the agreement. In this instance, the Company has agreed to pay us approximately $55,000 for preparing the Report.
Except for the fees referred to above, neither BDO Corporate Finance, nor any of its directors, employees or related entities, receive any pecuniary benefit or other benefit, directly or indirectly, for or in connection with the provision of general advice.
All our employees receive a salary. Our employees are eligible for bonuses based on overall company performance but not directly in connection with any engagement for the provision of a report.
REFERRALS
We do not pay commissions or provide any other benefits to any person for referring customers to us in connection with the reports that we are licensed to provide.
ASSOCIATIONS AND RELATIONSHIPS
BDO Corporate Finance is a member firm of the BDO network in Australia, a national association of separate entities (each of which has appointed BDO (Australia) Limited ACN 050 110 275 to represent it in BDO International). The general financial product advice in our report is provided by BDO Corporate Finance and not by BDO or its related entities. BDO and its related entities provide services primarily in the areas of audit, tax, consulting and financial advisory services.
We do not have any formal associations or relationships with any entities that are issuers of financial products. However, you should note that we and BDO (and its related entities) might from time to time provide professional services to financial product issuers in the ordinary course of business.
COMPLAINTS RESOLUTION
Internal Complaints Resolution Process
As the holder of an Australian Financial Services Licence, we are required to have a system for handling complaints from persons to whom we provide financial product advice. Complaints can be in writing, addressed to the Complaints Officer, BDO Corporate Finance, Level 11, 1 Margaret St, Sydney NSW 2001 or by telephone or email, using the contact details at the top of this FSG.
When we receive a complaint we will record the complaint, acknowledge receipt of the complaint within 15 days and investigate the issues raised. As soon as practical, and not more than 45 days after receiving the written complaint, we will advise the complainant in writing of our determination.
Referral to External Dispute Resolution Scheme
If a complaint relating to general advice to a retail client is not satisfied with the outcome of the above process, or our determination, has the right to refer the matter to the Australian Financial Complaints Authority (AFCA). AFCA is an independent company that has been established to impartially resolve disputes between consumers and participating financial services providers.
BDO Corporate Finance is a member of AFCA (Member Number 11843).
Further details about AFCA are available at the AFCA website www.afca.org.au or by contacting them directly via the details set out below.
Australian Financial Complaints Authority GPO Box 3 MELBOURNE VIC 3001 Toll free: 1800 931 678
Email: [email protected]
COMPENSATION ARRANGEMENTS
BDO Corporate Finance and its related entities hold Professional Indemnity insurance for the purpose of compensating retail clients for loss or damage suffered because of breaches of relevant obligations by BDO Corporate Finance or its representatives under Chapter 7 of the Corporations Act 2001. These arrangements and the level of cover held by BDO Corporate Finance satisfy the requirements of section 912B of the Corporations Act 2001.
CONTACT DETAILS
You may provide us with instructions using the details set out at the top of this FSG or by emailing - [email protected]
Tel: +61 2 9251 4100 Fax: +61 2 9240 9821 www.bdo.com.au
Level 11, 1 Margaret Street Sydney NSW 2000 Australia
SUMMARY OF FINDINGS
BDO Corporate Finance (East Coast) Pty Ltd ABN 70 050 038 170 AFS Licence No. 247 420 is a member of a national association of independent entities which are all members of BDO (Australia) Ltd ABN 77 050 110 275, an Australian company Limited by guarantee. BDO Corporate Finance (East Coast) Pty Ltd and BDO (Australia) Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards legislation.
INDEPENDENT EXPERT REPORT IN RELATION TO THE PROPOSED RESTRUCTURE OF MONASH ABSOLUTE
INVESTMENT COMPANY LIMITED INTO AN EXCHANGE TRADED MANAGED FUND
INTRODUCTION
BDO Corporate Finance (East Coast) Pty Ltd (ABN 70 050 038 170) (BDOCF, we, us or our) has been engaged by the
directors (Directors) of Monash Absolute Investment Company Limited (Monash or the Company) to prepare an
independent expert report (Report or IER) setting out our opinion as to whether the proposed restructure of Monash
from a public company listed on the Australian Securities Exchange (ASX) to a newly established exchange traded
managed fund, Monash Absolute Active Trust (Hedge Fund) (MAAT), with MAAT’s units to be traded on the market
operated by ASX known as AQUA (Proposed Transaction), is fair and reasonable to the shareholders of Monash (the
Shareholders).
Proposed Transaction
On 5 May 2020, the Company announced to the ASX the proposal by the Board of Directors to restructure Monash into
an Exchange Traded Managed Fund (ETMF).
Subject to Shareholder approval, the Proposed Transaction will involve the following:
MAAT will seek admission to AQUA Trading Status.
The Company will transfer the listed securities of Monash’s funds under management (Listed Assets) and an amount of cash (Cash Transfer Amount) to MAAT, a newly established registered managed investment trust that is wholly owned by the Company.
– The Trust Company (RE Services) Limited will act as responsible entity of MAAT (Responsible Entity).
– In return for the transfer of the Listed Assets, the Responsible Entity will issue the same number of fully paid ordinary units in MAAT as issued shares in the Company. The units will be distributed in-specie to the Shareholders on a 1 unit: 1 share basis (First Distribution (In-Specie)). Each investor will continue to hold the same percentage interest of units in MAAT as they have in shares in the Company.
– The investment portfolio will continue to be managed by the existing fund manager using the same investment strategies currently used for the Company.
The Company will be delisted from the ASX and will remain an unlisted public company (MA1-Unlisted). MA1-Unlisted will retain the unlisted securities (Unlisted Assets) and a cash reserve equal to the future dividends and forecast operating and winding up costs of MA1-Unlisted until liquidation.
– MA1-Unlisted will pay a fully-franked dividend per share to the Company’s Shareholders for the period ending 30 June 2021 (Second Distribution (Special Dividend)).
– MA1-Unlisted will continue to operate as an unlisted company until realisation of the Unlisted Assets and be wound up by no later than 30 June 2022 when MA1-Unlisted intends to pay a final dividend to Shareholders (Third Distribution (Capital Return)).
Further details of the Proposed Transaction are provided in the Shareholder Booklet.
The Directors
Monash Absolute Investment Company Limited
Level 5, 139 Macquarie Street
SYDNEY NSW 2000
31 March 2021
Dear Directors
Tel: +61 2 9251 4100 Fax: +61 2 9240 9821 www.bdo.com.au
Level 11, 1 Margaret Street Sydney NSW 2000 Australia
MONASH ABSOLUTE INVESTMENT COMPANY LTD II
INDEPENDENT EXPERT REPORT
The Directors’ rationale in pursuing the Proposed Transaction is to address the historically significant discount of the
traded market capitalisation to the value of the Company’s underlying net tangible assets (NTA). An ETMF structure
has been chosen as it may provide liquidity to unitholders through the actions undertaken by market maker agents,
allowing unitholders to potentially trade their units at a value that is closer to the company’s NTA. Macquarie Securities
(Australia) Limited (MSAL) has been appointed as the market maker for MAAT (Market Maker). MAAT aims to make
distributions of a least 1.50% each quarter.
If the Proposed Transaction proceeds, Monash Shareholders will hold the following securities (for each Monash share
currently held):
One unit in MAAT, which will include the NTA of the transferred Listed Assets and Cash Transfer Amount; and
One share in MA1-Unlisted, which will include the Unlisted Assets, deferred tax assets and liabilities and cash.
hereinafter collectively referred to as the Post Transaction Securities (Post Transaction Securities).
APPROACH
Under section 256B of the Corporations Act, the Company may only reduce its capital if it is fair and reasonable to
Shareholders as a whole. The Directors have requested that BDOCF prepare an IER stating whether, in our opinion, the
Proposed Transaction is fair and reasonable for the Shareholders, and the reasons for that opinion.
In preparing our IER, we have considered the requirements of:
ASIC Regulatory Guide 111 Content of expert reports (RG 111);
ASIC Regulatory Guide 112 Independence of experts (RG 112); and
Accounting Professional & Ethical Standards Board (APESB) professional standard APES 225 ‘Valuation Services’ (APES 225).
RG 111 establishes guidelines in respect of independent expert reports under the Act. This regulatory guide provides
guidance as to what matters an independent expert should consider to assist shareholders to make informed decisions
about transactions.
RG 111 states that there should be a separate assessment of fairness and reasonableness.
This engagement is a Valuation Engagement as defined by APES 225.
Fairness
RG 111.11 indicates that an offer is ‘fair’ if the value of the offer price or consideration is equal to or greater than the
value of the securities, the subject of the offer. The comparison must be made assuming:
a knowledgeable and willing but not anxious buyer, and a knowledgeable and willing but not anxious seller acting at arm’s length; and
100% ownership of the target company, irrespective of the percentage holding of the bidder or its associates in the target company.
In accordance with RG 111, an expert should focus on the substance of the transaction rather than the legal mechanism
used to achieve that purpose. As the percentage interest held by each Shareholder will not change as a result of the
Proposed Transaction, we have undertaken our fairness assessment pre and post transaction on a minority interest
basis.
Based on our interpretation of RG 111.11, we have compared:
The fair market value (FMV) of a Monash share pre transaction on a minority basis (being the value of the securities the subject of the offer, per RG 111.11; and
The FMV of the Post Transaction Securities on a minority basis (being the offer price or consideration per RG111.11).
The Proposed Transaction will be fair if the FMV of the Post Transaction Securities is equal to or greater than the FMV of a Monash share pre transaction on a minority basis.
Reasonableness
In accordance with paragraph 12 of RG111, an offer is ‘reasonable’ if it is ‘fair’. It might also be ‘reasonable’ if, despite being ‘not fair’, the expert believes there are sufficient reasons to vote for the proposal.
When deciding whether a transaction is ‘reasonable’, factors an expert might consider include:
the financial situation and solvency of the entity;
MONASH ABSOLUTE INVESTMENT COMPANY LTD III
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the alternative options available to the entity;
the entity’s bargaining position; and
whether there is selective treatment of any shareholder.
SUMMARY OF OPINION
We have concluded that the Proposed Transaction is fair and reasonable to the Shareholders.
A summary of our analysis in forming the above opinion is provided below. This summary should be read in conjunction
with our full IER that sets out in full the purpose, scope, basis of evaluation, limitations, information relied upon,
analysis and our findings.
In undertaking our assessment of fairness, we have had regard to the ASIC’s RG 111.
The Proposed Transaction will be fair if the FMV of the Proposed Transaction Securities (on a minority basis) is equal
to or greater than the FMV of a Monash share prior to the Proposed Transaction (on a minority basis).
We have assessed the FMV of a Monash share and the Post Transaction Securities using the quoted market price (QMP)
method and the net asset value (NAV) method.
Fairness Assessment
Our conclusion is based on the valuation date of 31 January 2021 (Valuation Date), the most recent month end date
and ASX released NTA valuation as at the date of our Report. Our analysis has been performed by comparing the value
of:
a Monash share pre transaction on a minority basis; and
the Post Transaction Securities on a minority basis.
The Proposed Transaction will be fair if the FMV of the Proposed Transaction Securities (on a minority basis) is equal
to or greater than the FMV of a Monash share prior to the Proposed Transaction on a minority basis.
The result of our fairness analysis is summarised below.
Table 1: Fairness summary
Fairness assessment Ref Low High
Preferred value of a Monash share, pre transaction (on a minority basis) 7.3 1.30 1.34
Preferred value of the Post Transaction Securities (on a minority basis) 8.3 1.30 1.40
Source: BDOCF analysis
Figure 1: Fairness assessment
Source: BDOCF analysis
As set out above, the total value of the Post Transaction Securities is above the assessed FMV range per Monash share
prior to the Proposed Transaction. Therefore, we have concluded that the Proposed Transaction is fair to Shareholders.
$1.25 $1.27 $1.29 $1.31 $1.33 $1.35 $1.37 $1.39 $1.41 $1.43 $1.45
Value of the PostTransaction Securities (on a
minority basis)
Value of a Monash shareprior to the Proposed
Transaction (on a minoritybasis)
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Reasonableness assessment
In accordance with RG 111 an offer is reasonable if it is fair. On this basis, the Proposed Transaction is reasonable to
the Monash Shareholders.
Nevertheless, we have set out below a summary of reasonableness factors we consider relevant in assisting Monash
Shareholders in deciding whether or not to vote in favour of the Proposed Transaction.
Table 2: Summary of factors considered in the reasonableness assessment
Advantages
Potential for the share price to trade at a value that is closer to the NTA
It is observed that comparable Australian ETMFs which are of a similar size and scale to MAAT trade at a smaller discount to NTA than comparable Australian LICs. The observed median (discount)/premium to NTA for comparable Australian ETMFs as noted in Section 4.4 is -0.3%. As at 31 January 2021, Monash traded at a discount to pre-tax NTA of -8.8% and post-tax NTA of -0.2%.
Potential for greater liquidity Through the ETMF structure, the Market Marker can introduce liquidity by creating and redeeming ETMF units relative to demand exhibited in the ETMF’s units.
Disadvantages
Tax consequences The transfer of Monash’s listed assets to MAAT will result in an immediate crystallisation of that part of Monash’s deferred tax liability.
Any tax paid by MA1-Unlisted on its taxable income should generate franking credits which can be attached to franked dividends paid by MA1-Unlisted. Any unused franking credits will be trapped in MA1-Unlisted if it is unable to pay franked dividends in future years.
Management have structured the Proposed Transaction with the intention to distribute all available franking credits to Shareholders.
Shareholders should seek independent income tax advice in relation to the tax consequences of the Proposed Transaction.
Reduction in total value of assets held in the liquid MAAT entity
MAAT will have a smaller total asset value than the Company pre transaction due to the realisation of the Unlisted Assets, the realisation of a portion of the Listed Assets to fund the fully-franked distributions, the payment of associated tax liability upon the realisation of those assets, payment of the fully-franked dividends, and associated transaction costs.
As noted in Section 3.7 listed investment vehicles with smaller capitalisations may trade at a higher discount than larger scale investment vehicles.
Other factors
The Directors recommendation The Directors believe that the Proposed Transaction is in the best interests of the Company and recommend that Shareholders vote in favour of the Proposed Transaction.
Consistent investment strategy Shareholder investments will continue to be managed according to the same investment strategy in MAAT.
Reduced management operating costs
The management costs of MAAT following the Proposed Transaction may be lower than Monash’s management fees due to factors including:
a reduction in management fee from 1.5% to 1.25%
a reduction in performance fees due to an increase in the performance hurdle.
We do note that MAAT will incur additional costs of at least $120k per annum in relation to the Market Maker, and until the winding up of MA1-Unlisted, investors will be indirectly subject to the operating costs of two entities.
Source: BDOCF analysis
OTHER MATTERS
Shareholders’ individual circumstances
Our analysis has been undertaken, and our conclusions are expressed at an aggregate level. Accordingly, BDOCF has
not considered the effect of the Proposed Transaction on the particular circumstances of individual Shareholders. Some
individual Shareholders may place a different emphasis on various aspects of the Proposed Transaction from that
adopted in this IER. Accordingly, individual Shareholders may reach different conclusions as to whether or not the
Proposed Transaction is fair and reasonable in their individual circumstances.
The decision of an individual Shareholder in relation to the Proposed Transaction may be influenced by their particular
circumstances and accordingly Shareholders are advised to seek their own independent advice.
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INDEPENDENT EXPERT REPORT
Approval or rejection of the Proposed Transaction is a matter for individual Shareholders based on their expectations
as to the expected value and future prospects and market conditions together with their particular circumstances,
including risk profile, liquidity preference, portfolio strategy and tax position. The Shareholders should carefully
consider the Shareholder Booklet. The Shareholders who are in doubt as to the action they should take in relation to
the Proposed Transaction should consult their professional adviser.
General requirements in relation to the IER
In preparing the IER ASIC requires the independent expert, when deciding on the form of analysis for a report, to bear
in mind that the main purpose of the report is to adequately deal with the concerns that could reasonably be anticipated
by those persons affected by the Proposed Transaction. In preparing the IER we considered ASIC regulatory guides and
commercial practice.
The IER also includes the following information and disclosures:
particulars of any relationship, pecuniary or otherwise, whether existing presently or at any time within the past, between BDOCF and any of the parties to the Proposed Transaction;
the nature of any fee or pecuniary interest or benefit, whether direct or indirect, that we have received or will or may receive for or in connection with the preparation of the IER;
we have been appointed as independent expert for the purposes of providing an IER in relation to the Proposed Transaction for the Directors;
that we have relied on information provided by Management and that we have not carried out any form of audit or independent verification of the information; and
that we have received representations from the Directors in relation to the completeness and accuracy of the information provided to us for the purpose of our IER.
Current market conditions
Our opinion is based on economic, market and other conditions prevailing at the date of this IER. Such conditions can change significantly over relatively short periods of time.
Changes in those conditions may result in any valuation or other opinion becoming quickly outdated and in need of revision. We reserve the right to revise any valuation or other opinion, in the light of material information existing at the valuation date that subsequently becomes known to us.
Glossary
Capitalised terms used in this IER have the meanings set out in the glossary. A glossary of terms used throughout this IER is set out in Appendix 1.
Sources of information
Appendix 2 to the IER sets out details of information referred to and relied upon by us during the course of preparing this IER and forming our opinion.
The statements and opinions contained in this IER are given in good faith and are based upon our consideration and assessment of information provided by Monash.
Under the terms of our engagement, Monash has agreed to indemnify BDOCF and their partners, directors, employees, officers and agents (as applicable) against any claim, liability, loss or expense, costs or damage, arising out of reliance on any information or documentation provided, which is false or misleading or omits any material particulars, or arising from failure to supply relevant documentation or information.
Limitations
This IER has been prepared at the request of the Directors for the sole benefit of the Directors and the Shareholders to assist them in their decision to approve or reject the Proposed Transaction. This IER is to accompany the Shareholder Booklet to be sent to the Shareholders to consider the Proposed Transaction and was not prepared for any other purpose.
Accordingly, this IER and the information contained herein may not be relied upon by anyone other than the Directors and the Shareholders without our written consent. We accept no responsibility to any person other than the Directors and the Shareholders in relation to this IER.
This IER should not be used for any other purpose and we do not accept any responsibility for its use outside this purpose. Except in accordance with the stated purpose, no extract, quote or copy of our IER, in whole or in part, should be reproduced without our written consent, as to the form and context in which it may appear.
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INDEPENDENT EXPERT REPORT
We have consented to the inclusion of the IER within the Shareholder Booklet. Apart from this IER, we are not responsible for the contents of the Shareholder Booklet or any other document associated with the Shareholder Booklet. We acknowledge that this IER may be lodged with regulatory authorities.
Summary
This summary should be read in conjunction with our full IER that sets out in full the purpose, scope, basis of evaluation, limitations, information relied upon, analysis and our findings.
Financial Service Guide
BDOCF holds an Australian Financial Services Licence which authorises us to provide reports for the purposes of acting for and on behalf of clients in relation to proposed or actual mergers, acquisitions, takeovers, corporate restructures or share issues. A financial services guide is attached to this IER.
Yours faithfully
BDO CORPORATE FINANCE (EAST COAST) PTY LTD
David McCourt
Director
Daniel Coote
Director
INDEPENDENT EXPERT REPORT
MONASH ABSOLUTE INVESTMENT COMPANY LTD INDEPENDENT EXPERT REPORT
TABLE OF CONTENTS
1. PURPOSE AND BACKGROUND 1 1.1. Purpose 1 1.2. Background of the Proposed Transaction 1
2. SCOPE AND LIMITATIONS 2 2.1. Scope 2 2.2. Summary of regulatory requirements 2 2.3. Basis of assessment 2 2.4. Special value 3 2.5. Reliance on information 3 2.6. Limitations 4 2.7. Assumptions 4
3. PROFILE OF MONASH 5 3.1. Overview 5 3.2. Historical Statements of Profit or Loss 8 3.3. Historical Statements of Financial Position 9 3.4. Capital structure 10 3.5. Historical share trading analysis 10 3.6. Volume weighted average price analysis 11 3.7. Discount to NTA 12
4. INDUSTRY ANALYSIS 12 4.1. Overview of LICs 12 4.2. Overview of ETMFs 12 4.3. Comparison of LICs and ETMFs 13 4.4. Trading analysis of LICs and ETMFs 13
5. OVERVIEW OF MONASH SECURITIES UNDER THE PROPOSED TRANSACTION 14 5.1. Proposed Structure 14 5.2. Effect on Shareholders 14 5.3. Effect on Optionholders 15 5.4. Changes to the Investment Management Agreement 15 5.5. Overview of Market Maker agreement 15 5.6. Pro-forma financial position following the Proposed Transaction 16 5.7. Cost structure post transaction 17
6. FAIRNESS ASSESSMENT AND VALUATION METHODOLOGY 18 6.1. Fairness assessment overview 18 6.2. Common valuation methodologies 18 6.3. Selected valuation methods for Monash Shares 18 6.4. Other valuation considerations 19
7. VALUATION OF A MONASH SHARE PRIOR TO THE PROPOSED TRANSACTION 19 7.1. FMV of a Monash share using the QMP method 19 7.2. FMV of a Monash share using the NAV method 20 7.3. Conclusion on the FMV of a Monash share prior to the Proposed Transaction 20
8. VALUATION OF THE POST TRANSACTION SECURITIES 21 8.1. FMV of a MAAT unit 21 8.2. FMV of a MA1-Unlisted share 23 8.3. Conclusion on the FMV of the Post Transaction Securities 25
9. FAIRNESS ASSESSMENT 25
10. REASONABLENESS ASSESSMENT 25
11. OVERALL OPINION 26
12. QUALIFICATIONS, DECLARATIONS AND CONSENTS 26 12.1. Qualifications 26 12.2. Independence 27 12.3. Disclaimer 27
APPENDIX 1: GLOSSARY 28
APPENDIX 2: SOURCES OF INFORMATION 30
APPENDIX 3: VALUATION METHODS - BUSINESSES AND ASSETS 31
MONASH ABSOLUTE INVESTMENT COMPANY LTD 1
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1. PURPOSE AND BACKGROUND
1.1. Purpose
BDO Corporate Finance (East Coast) Pty Ltd (ABN 70 050 038 170) (BDOCF, we, us or our) has been engaged by the
directors (Directors) of Monash Absolute Investment Company Limited (Monash or the Company) to prepare an
independent expert report (Report or IER) setting out our opinion as to whether the proposed restructure of Monash
from a public company listed on the Australian Securities Exchange (ASX) to a newly established exchange traded
managed fund, Monash Absolute Active Trust (Hedge Fund) (MAAT), with MAAT’s units to be traded on the market
operated by ASX known as AQUA (Proposed Transaction), is fair and reasonable to the shareholders of Monash (the
Shareholders).
This IER is to accompany the Shareholder Booklet to be provided to the Shareholders. It has been prepared to assist and
enable the Shareholders to assess the proposal and to decide whether to approve the Proposed Transaction.
A summary of key terms of the Proposed Transaction are set out below.
1.2. Background of the Proposed Transaction
On 5 May 2020, the Company announced to the ASX the proposal by the Board of Directors to restructure Monash into
an Exchange Traded Managed Fund (ETMF).
Subject to Shareholder approval, the Proposed Transaction will involve the following:
MAAT will seek admission to AQUA Trading Status.
The Company will transfer the listed securities of Monash’s funds under management (Listed Assets) and an amount of cash (Cash Transfer Amount) to MAAT, a newly established registered managed investment trust that is wholly owned by the Company.
– The Trust Company (RE Services) Limited will act as responsible entity of MAAT (Responsible Entity).
– In return for the transfer of the Listed Assets, the Responsible Entity will issue the same number of fully paid ordinary units in MAAT as issued shares in the Company. The units will be distributed in-specie to the Shareholders on a 1 unit: 1 share basis (First Distribution (In-Specie)). Each investor will continue to hold the same percentage interest of units in MAAT as they have in shares in the Company.
– The investment portfolio will continue to be managed by the existing fund manager using the same investment strategies currently used for the Company.
The Company will be delisted from the ASX and will remain an unlisted public company (MA1-Unlisted). MA1-Unlisted will retain the unlisted securities (Unlisted Assets) and a cash reserve equal to the future dividends and forecast operating and winding up costs of MA1-Unlisted until liquidation.
– MA1-Unlisted will pay a fully-franked dividend per share to the Company’s Shareholders for the period ending 30 June 2021 (Second Distribution (Special Dividend)).
– MA1-Unlisted will continue to operate as an unlisted company until realisation of the Unlisted Assets and be wound up by no later than 30 June 2022 when MA1-Unlisted intends to pay a final dividend to Shareholders (Third Distribution (Capital Return)).
Further details of the Proposed Transaction are provided in the Shareholder Booklet.
The Directors’ rationale in pursuing the Proposed Transaction is to address the historically significant discount of the
traded market capitalisation to the value of the Company’s underlying net tangible assets (NTA). An ETMF structure has
been chosen as it may provide liquidity to unitholders through the actions undertaken by market maker agents, allowing
unitholders to potentially trade their units at a value that is closer to the company’s NTA. Macquarie Securities
(Australia) Limited (MSAL) has been appointed as the market maker for MAAT (Market Maker). MAAT aims to make
distributions of a least 1.50% each quarter.
If the Proposed Transaction proceeds, Monash Shareholders will hold the following securities (for each Monash share
currently held):
One unit in MAAT, which will include the NTA of the transferred Listed Assets and Cash Transfer Amount; and
One share in MA1-Unlisted, which will include the Unlisted Assets, deferred tax assets and liabilities and cash.
hereinafter collectively referred to as the Post Transaction Securities (Post Transaction Securities).
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Conditions precedent
The Proposed Transaction is subject to a number of conditions precedents including:
all regulatory approvals or consents necessary to implement the Proposed Transaction (including conditional approval for MAAT to be admitted to Trading Status) have been granted, given, made or obtained on an unconditional basis and remain in full force and effect in all respects;
each of the resolutions noted in the Shareholder Booklet being approved by the Shareholders;
the subscription agreement between the Company and the Responsible Entity being unconditional (other than any condition precedent relating to the satisfaction of the conditions precedent under the implementation agreement between the Company and the Responsible Entity);
the Company and Monash Investors Pty Limited (the Fund Manager) entering into a deed of variation to amend the existing investment management agreement and entering into a new investment management agreement;
the Company being satisfied with the contents of the opinions provided by Ernst & Young setting out the tax implications of the Proposed Transaction; and
neither the Company nor Responsible Entity breach any material provision of the Implementation Agreement that remains un-remedied, nor any prescribed occurrence occurring prior to the effective date.
Please refer to the Shareholder Booklet for further information.
2. SCOPE AND LIMITATIONS
2.1. Scope
The scope of the procedures we undertook in forming our opinion on whether the Proposed Transaction is fair and
reasonable to the Shareholders has been limited to those procedures we believe are required in order to form our
opinion. Our procedures did not include verification work nor constitute an audit or assurance engagement in accordance
with Australian Auditing and Assurance Standards.
Our assessment involved determining the fair market value (FMV) of various securities, assets and liabilities. For the
purposes of our opinion, the term FMV is defined as the price that would be negotiated in an open and unrestricted
market between a knowledgeable, willing, but not anxious purchaser and a knowledgeable, willing, but not anxious
vendor, acting at arm’s length.
2.2. Summary of regulatory requirements
Under section 256B of the Corporations Act, the Company may only reduce its capital if it is fair and reasonable to
Shareholders as a whole. The Directors have requested that BDOCF prepare an IER stating whether, in our opinion, the
Proposed Transaction is fair and reasonable for the Shareholders, and the reasons for that opinion.
2.3. Basis of assessment
In determining whether the Proposed Transaction is fair and reasonable to the Shareholders, we have had regard to:
RG 111 ‘Content of expert reports’
RG 112 ‘Independence of experts’
RG 111 establishes two distinct criteria for an expert analysing a control transaction. The tests are:
Is the offer ‘fair’?
Is it ‘reasonable’?
The terms fair and reasonable are regarded as separate elements and are not regarded as a compound phrase.
2.3.1. Fairness
RG 111.11 indicates that an offer is ‘fair’ if the value of the offer price or consideration is equal to or greater than the
value of the securities the subject of the offer. The comparison must be made assuming:
A knowledgeable and willing, but not anxious, buyer and a knowledgeable and willing, but not anxious, seller acting at arm’s length.
100% ownership of the target company, irrespective of the percentage holding of the bidder or its associates in the target company.
In accordance with RG 111, an expert should focus on the substance of the transaction rather than the legal mechanism
used to achieve that purpose. As the percentage interest held by each Shareholder will not change as a result of the
Proposed Transaction, we have undertaken our fairness assessment pre and post transaction on a minority interest basis.
Based on our interpretation of RG111.11, we have compared:
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INDEPENDENT EXPERT REPORT
The fair market value (FMV) of a Monash share pre transaction on a minority basis (being the value of the securities the subject of the offer, per RG 111.11; and
The FMV of the Post Transaction Securities on a minority basis (being the offer price or consideration per RG111.11).
The Proposed Transaction will be fair if the FMV of the Post Transaction Securities is equal to or greater than the FMV
of a Monash share pre transaction on a minority basis.
2.3.2. Reasonableness
In accordance with paragraph 12 of RG 111, an offer is ‘reasonable’ if it is ‘fair’. An offer could be considered
‘reasonable’ if there are valid reasons to approve it (in the absence of any higher bid before the close of the offer),
notwithstanding that it may not be regarded as ‘fair’.
When deciding whether a transaction is ‘reasonable’, factors an expert might consider include:
the financial situation and solvency of the entity;
the alternative options available to the entity;
the entity’s bargaining position; and
whether there is selective treatment of any shareholder.
2.3.3. General requirements in relation to the IER
In preparing the IER ASIC requires the independent expert, when deciding on the form of analysis for a report, to bear
in mind that the main purpose of the report is to adequately deal with the concerns that could reasonably be anticipated
of those persons affected by the Proposed Transaction. In preparing the IER we considered the necessary legal
requirements and guidance of the Act, ASIC regulatory guides and commercial practice.
The IER also includes the following information and disclosures:
particulars of any relationship, pecuniary or otherwise, whether existing presently or at any time within the last two years, between BDO Groups Holdings Limited or BDOCF and any of the parties to the Proposed Transaction;
the nature of any fee or pecuniary interest or benefit, whether direct or indirect, that we have received or will or may receive for or in connection with the preparation of the IER;
that we have relied on information provided by the Directors and management of Monash (Management) and that we have not carried out any form of audit or independent verification of the information; and
that we have received representations from the Directors and Management of Monash in relation to the completeness and accuracy of the information provided to us for the purpose of our IER.
2.4. Special value
We have not considered special value in forming our opinion. Special value is the amount that a potential acquirer may
be prepared to pay for a business in excess of the FMV. This premium represents the value to the particular potential
acquirer of potential economies of scale, reduction in competition, other synergies and cost savings arising from the
acquisition under consideration not available to likely purchasers generally. Special value is not normally considered in
the assessment of FMV as it relates to the individual circumstances of special purchasers.
2.5. Reliance on information
This IER is based upon financial and other information provided by the Directors, Management and other representatives
of Monash. We have considered and relied upon this information. Unless there are indications to the contrary, we have
assumed that the information provided was reliable, complete and not misleading, and material facts were not withheld.
The information provided was evaluated through analysis, inquiry and review for the purpose of forming an opinion as
to whether the Proposed Transaction is fair and reasonable.
We do not warrant that our inquiries have identified or verified all of the matters which an audit, extensive examination
or “due diligence” investigation might disclose. In any event, an opinion as to whether a corporate transaction is fair
and reasonable is in the nature of an overall opinion rather than an audit or detailed investigation.
It is understood that the accounting information provided to us was prepared in accordance with generally accepted
accounting principles.
Where we relied on the views and judgement of management the information was evaluated through analysis, inquiry
and review to the extent practical. However, such information is often not capable of direct external verification or
validation.
Under the terms of our engagement, Monash has agreed to indemnify BDOCF, and their partners, directors, employees,
officers and agents (as applicable) against any claim, liability, loss or expense, costs or damage, arising out of reliance
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INDEPENDENT EXPERT REPORT
on any information or documentation provided, which is false or misleading or omits any material particulars, or arising
from failure to supply relevant documentation or information.
2.6. Limitations
We acknowledge that this IER may be lodged by the Directors with regulatory and statutory bodies and will be included
in the Shareholder Booklet to be sent to the Monash Shareholders. The Directors acknowledges that our IER has been
prepared solely for the purposes noted in the Shareholder Booklet and accordingly we disclaim any responsibility from
reliance on the IER in regard to its use for any other purpose. Except in accordance with the stated purposes, no extract,
quote or copy of the IER, in whole or in part, should be reproduced without our prior written consent, as to the form
and context in which it may appear.
It was not our role to undertake, and we have not undertaken any commercial, technical, financial, legal, taxation or
other due diligence, other similar investigative activities in respect of Monash. We understand that the Directors have
been advised by legal, accounting, tax and other appropriate advisors in relation to such matters as necessary. We
provide no warranty or guarantee as to the existence, extent, adequacy, effectiveness and/or completeness of any due
diligence or other similar investigative activities by the Directors or their advisors.
We note that the IER does not deal with the individual investment circumstances of the Shareholders and no opinion has
been provided in relation to same. Some individual Shareholders may place a different emphasis on various aspects of
the Proposed Transaction from that adopted in our IER. Accordingly, individuals may reach different conclusions on
whether or not the Proposed Transaction is fair and reasonable. An individual Shareholder’s decision in relation to the
Proposed Transaction may be influenced by their particular circumstances and, therefore, Shareholders are advised to
seek their own independent advice.
Apart from the IER, we are not responsible for the contents of the Shareholder Booklet or any other document. We have
provided consent for inclusion of the IER in the Shareholder Booklet. Our consent and the Shareholder Booklet
acknowledge that we have not been involved with the issue of the Shareholder Booklet and that we accept no
responsibility for the Shareholder Booklet apart from the IER.
2.7. Assumptions
In forming our opinion, we have made certain assumptions and outline these in our IER including:
assumptions outlined in the valuation sections;
that matters such as title to all relevant assets, compliance with laws and regulations and contracts in place are in good standing, and will remain so, and that there are no material legal proceedings, other than as publicly disclosed;
information sent out in relation to the Proposed Transaction to the Shareholders or any regulatory or statutory body is complete, accurate and fairly presented in all material respects;
publicly available information relied on by us is accurate, complete and not misleading;
if the Proposed Transaction is implemented, that it will be implemented in accordance with the stated terms;
the legal mechanisms to implement the Proposed Transaction are correct and effective; and
there are no undue changes to the terms and conditions of the Proposed Transaction or material issues unknown to us.
MONASH ABSOLUTE INVESTMENT COMPANY LTD 5
INDEPENDENT EXPERT REPORT
3. PROFILE OF MONASH
3.1. Overview
Monash is a Sydney based Listed Investment Company (LIC). Since its admission to the official list of the ASX on 11 April
2016 as an LIC, the Company’s investment strategy has been to invest in a portfolio of predominantly Australian listed
securities, as well as some pre-IPO securities. In order to achieve a targeted positive return Monash has adopted various
investment techniques including the use of long and short positions, price targets, stop loss levels, cash holdings and
derivatives. Monash’s investment objective is to achieve returns over a full investment cycle which it considers to be a
minimum period of 5 to 7 years and avoid a negative return each financial year. The investment strategy is Benchmark
Unaware and there is no predetermined asset allocation.
As at 31 January 2021 Monash had a market capitalisation of $59.2m with approximately 97.2% of the Company’s
investments in listed securities and cash and the remaining 2.6% of the investments in unlisted securities.
3.1.1. Existing Investment Management Agreement
On 23 February 2016, the Company and the Fund Manager, Monash Investors Pty Limited entered into the existing
Investment Management Agreement (IMA). Under the existing IMA, the Fund Manager is paid a monthly management fee
of 1.50% per annum (excluding GST) of the NTA before all taxes, calculated on the last business day of each month. In
addition, the Manager is also entitled to a performance fee of 20.0% (exclusive of GST) where:
NTA before all taxes and corporate expenses (after the payment of Management fees) is above the high water mark;
Portfolio performance is a positive number; and
Portfolio performance exceeds the Reserve Bank of Australia (RBA) Cash Rate hurdle.
For the financial year ending 30 June 2020 (FY20), management fees of $763.9k and performance fees of $674.7k were
paid to the Fund Manager. For the prior financial year ending 30 June 2019 (FY19), management fees of $687.0k and
performance fees of $928.3k were paid.
The term of the existing IMA is for an initial period of ten years, with automatic five year extensions unless terminated
earlier. The existing IMA can be terminated by the Fund Manager at any time after the initial term by giving Monash six
months’ notice.
3.1.2. Investment Portfolio
Monash’s investment allocation as at 31 January 2021 is summarised below.
Figure 2: Monash Investment Allocation by Sector
Source: Monash Management, BDOCF analysis
As at 31 January 2021, Monash’s investment portfolio was comprised of 35 companies, of which four companies are
unlisted investments and three are short positions. Monash’s investment are in the following industries: Consumer
Discretionary, Information Technology, Health Care, Industrials, Communication Services, Materials and Consumer
Staples. Consumer Discretionary represents the largest portfolio allocation by value at 28.2%, followed by Information
Technology at 18.1% and Health Care at 14.9%.
The top 10 equity holdings of Monash’s portfolio as at 31 January 2021 are shown on the following table.
Cash
Consumer Discretionary
Information Technology
Health Care
Industrials
Communication Services
Materials
ETF (Cash)
MONASH ABSOLUTE INVESTMENT COMPANY LTD 6
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Table 3: Monash top 10 equity positions as at 31 January 2021
Ticker Company
ASX:KGN KOGAN.COM LIMITED
ASX:PPE PEOPLE INFRASTRUCTURE LIMITED
ASX:EML EML PAYMENTS LIMITED
ASX:LOV LOVISA HOLDINGS LIMITED
ASX:TLX TELIX PHARMACEUTICALS LIMITED
ASX:APT AFTERPAY LIMITED
ASX:UWL UNITI GROUP LIMITED
ASX:EOS ELECTRO OPTIC SYSTEMS HOLDINGS LTD
ASX:HLA HEALTHIA LIMITED
ASX:JIN JUMBO INTERACTIVE LIMITED
Source: Monash Management
3.1.3. Unlisted investments
Monash’s unlisted equity investments in aggregate are valued at $1.5m as at 31 January 2021 per their financial
statements. Monash’s unlisted investment portfolio comprises the following four private companies:
a) Kayla Technologies Pty Ltd, trading as Hometime (Hometime)
Hometime is a property management services company which provides an offering for AirBnb hosts.
Monash first invested in Hometime Group in July 2016 and has partially sold down in a subsequent share issue. As at 31
December 2020 Monash holds 35,921 shares. Per Hometime’s FY19 financial statements, revenue is $5.3m, Earnings
before Interest, Tax, Depreciation & Amortisation (EBITDA) was $2.9m and net assets were $3.2m.
Management intend to sell 100% of their holding in Hometime.
b) Lumitron Holdings Inc. (Lumitron)
Lumitron develops and commercialises x-ray and gamma-ray technology systems. Their technology aims to enable new
capabilities to the radiography industry. Monash holds 28,750 shares. Lumitron recently completed a capital raise of
US$34.0m in January 2020 at a capital raise price of US$10.0.
c) Moboom Limited (Moboom)
Moboom is an online publishing platform which has developed a patented solution that enables the creation of
websites that are compatible across multiple devices. Monash invested in Moboom in FY14 and participated in
subsequent share issues. Monash holds 3,625,714 shares in Moboom. In FY20, Moboom generated $2.1m in revenue
(FY19: $1.7m) and a loss of -$3.2m (FY19: -$2.3m).
Monash Management are intending to realise their investment in Moboom on their intended Initial Public Offering
(IPO) on NASDAQ in 2021.
d) Nexidus Pty Ltd, trading as Solar D (Solar D)
Solar D manufactures and distributes broad-spectrum sunscreen products that protect against UV rays and promote
the intake of Vitamin D. Monash holds 2,983,350 shares.
In FY19 Solar D generated revenue of $0.2m, an EBITDA loss of $1.2m and had net liabilities of $1.5m.
Solar D has not made any announcements regarding future capital raisings or a timeline to profitability.
3.1.4. Investment Performance
The performance of Monash’s portfolio against benchmark indices as at 31 January 2021 is summarised below.
Table 4: Performance comparison
Performance at 31 Jan 2021 (p.a.) YTD21 3 months 1 year Since inception
(p.a.)
Monash NTA (pre-tax) 32.19% 18.10% 23.89% 9.68%
MA1 share price 35.17% 13.79% 30.53% 6.87%
ASX 200 13.55% 11.89% (3.11%) 10.28%
Small Ords 19.98% 13.03% 5.38% 10.88%
NTA outperformance vs ASX 200 18.64% 6.21% 27.00% (0.60%)
NTA outperformance vs Small Ords 12.21% 5.07% 18.51% (1.21%)
Note: Since inception relates to the performance period p.a. from 12 April 2016.
Source: ASX Announcements, Monash Management
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Monash’s 1-year NTA (pre-tax) was up 23.89% (after fees) compared to the S&P/ASX200 which was down -3.11% and the
Small Ords, which was up 5.38%. This portfolio outperformance occurred in light of the market downturn caused by the
outbreak of COVID-19. In response to the COVID-19 outbreak, Monash sold out of positions to increase their cash
weighting up to 50% and took short positions in companies negatively impacted such as those within the airline, travel,
casino, education and aged care industries. Monash subsequently purchased growth stocks without COVID-19 exposure,
closed their short positions and decreased their cash position to 2%.
In the year to 31 January 2021 (YTD21) the Monash NTA (pre-tax) outperformed the S&P/ASX200 Benchmark by 18.64%
and the Small Order benchmark by 12.21%. Monash’s outperformance has been attributed to holdings in a number of
stocks which performed well in this period including: Afterpay (ASX:APT), Kogan (ASX:KGN), People Infrastructure
(ASX:PPE), Telix (ASX:TLX), Lovisa (ASX:LOV) and Webject (ASX:WEB). Over the same period Monash also increased its
cash position to c. 28%.
3.1.5. Directors and Management
The Directors and key Management personnel are listed below.
Table 5: Directors and Key Management
Name Position Brief resume
Paul Clitheroe Independent Non-executive Chairman
Paul Clitheroe has had an extensive career within the financial services industry as a company director, key practitioner and also educator. Paul Clitheroe has been Chairman of the Australian Government Financial Literacy Board since 2002, which sets and implements the national strategy for financial literacy with a particular focus on schools, universities and vocational education. Paul Clitheroe was host of “Money” on Channel 9 from 1993 to 2002. Paul Clitheroe holds the Chair of Financial Literacy at Macquarie University and is a Professor in the School of Business and Economics.
Suvan de Soysa Independent Non-executive Director, Chairman of Audit and Risk Committee
Suvan de Soysa has over 30 years, experience in wealth management. He was a co-founder of IPAC Securities Limited, which became a leading financial planning and portfolio management firm. At Ipac Securities Limited, Suvan held a range of senior executive roles with accountability for financial planning, strategic partnerships, investment product and registry services, and was Managing Director of the private clients business, AXA Life Subsidiary in the UK. Suvan has consulted extensively to the financial services industry and held a range of government roles. He has served on audit and compliance committees and been a nominated responsible officer on behalf of the trustee of superannuation funds in Australia.
Simon Shields Non-Independent Executive Director
Simon Shields is one of Australia’s leading fund managers with over 29 years of industry experience including as Head of Australian Equities at UBS Asset Management (Australia) Limited (UBS) and Head of Australian Equities at Colonial First State Limited (CFS). Simon has been a member of and/or led multi-award winning equity teams across a range of investment styles. Simon commenced his career as an analyst with Westpac Investment Management Limited (now part of BT Investment Management Limited), before moving into a portfolio management role. In 1995, he moved to Rothschild Australia Asset Management Limited as a Portfolio Manager, responsible for value-style Australian equities. In March 1998, he joined CFS as a Senior Portfolio Manager, responsible for growth style Australian and New Zealand equities, before becoming the Head of Australian Equities in January 2004. In July 2007, he moved to UBS as Managing Director and Head of Australian Equities and in 2011 also took responsibility for the ING Investment Management Limited Australian equity team following its acquisition by UBS.
Paul Jensen Independent Non-executive Director
Paul Jensen is a qualified and accomplisher director, having served as an executive and non-executive director for over 20 years on both ASX listed and unlisted boards, with extensive experience in the listed investment company sector. Mr Jensen has a Bachelor of Commerce and Administration (Accounting and Commercial Law) from Victoria University Wellington and he is a Fellow of the Australian Institute of Company Directors.
Source: Monash’s reviewed financial statements for 1H21, ASX Announcements
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3.2. Historical Statements of Profit or Loss
The Historical Statements of Profit or Loss for Monash based on the audited financial statements for FY19 and FY20, and
the unaudited financial year to 31 January 2021 are set out in the table below.
Table 6: Monash’s Historical Statement of Profit or Loss
$'000 FY19 FY20 YTD21
Investment income from ordinary activities
Net realised gains on investments 1 2,098 (9,674) 6,903
Net unrealised gains on investments 2 3,621 14,680 13,811
Dividend income 486 331 434
Other income - - 5
Interest income 75 14 0
Net foreign exchange gain 1 (9) (102)
Total investment income 6,282 5,343 21,052
Expenses
Management fees (687) (764) (554)
Performance fees 3 (928) (675) (4,140)
Short dividend expense (147) (144) 17
Brokerage expense 4 (107) (148) -
Interest expense - - (15)
Stock loan fees (29) (14) (18)
Share registry fees (27) (28) (27)
Company secretarial fees (51) (52) (27)
Tax fees (21) (14) (12)
Legal fees (1) (95) (99)
Directors' fees (90) (90) (65)
ASX fees (46) (44) (29)
Audit fees (42) (45) (28)
Other expenses (323) (300) (177)
Total expenses (2,501) (2,413) (5,175)
Profit before income tax 3,781 2,930 15,877
Income tax expense (1,004) (802) (4,631)
Profit for the year after tax 2,777 2,128 11,247
Source: Monash’s audited financial statements for FY19 and FY20 and unaudited management accounts for YTD21
Notes:
1 Net realised gains on investments in YTD21 of $6.9m relate to the sale of part of Monash’s holdings on favourable positions held
in the period such as Afterpay (ASX:APT) and Kogan (ASX:KGN).
2
Reported net unrealised gains on investments in YTD21 were $13.8m. The significant net unrealised gains in this period are the
result of Monash adapting its portfolio in response to the outbreak of COVID-19 by holding a number of growth stocks positioned
for a correction in valuations observed in the market. Monash’s holdings which contributed to the net unrealised gains on
investment in YTD21 include Afterpay (ASX:APT), Kogan (ASX:KGN), People Infrastructure (ASX:PPE), Telix (ASX:TLX), Lovisa
(ASX:LOV) and Webject (ASX:WEB).
3 Performance fees were earned in YTD21 following outperformance of the high water mark and the benchmark by 40.85% and
40.74%, respectively.
4 Management has confirmed that brokerage expenses are separately itemised for statutory accounting purposes. For the YTD21
period, brokerage expenses are included within net unrealised gains on investment.
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3.3. Historical Statements of Financial Position
The Historical Statements of Financial Position for Monash as at 30 June 2019, 30 June 2020 and 31 December 2020 are set out below. The information for 30 June 2019 and 30 June 2020 is based on audited financial statements, 31 December 2020 is based on reviewed financial statements and 31 January 2021 is based on unaudited management accounts.
Table 7: Monash’s Historical Statement of Financial Position
$'000 Jun-19 Jun-20 Dec-20 Jan-21
Current assets
Cash and cash equivalents 5,649 8,186 16,472 19,871
Other receivables 95 108 340 31
Financial assets at fair value through profit or loss 1 44,559 44,381 56,326 54,597
Other current assets 50 41 23 24
Total current assets 50,353 52,716 73,161 74,524
Non-current assets
Deferred tax assets 1,469 1,320 94 29
Total non-current assets 1,469 1,320 94 29
Total assets 51,822 54,036 73,255 74,553
Current liabilities
Other payables (1,238) (910) (5,338) (5,498)
Financial liabilities at fair value through profit or loss 2 (2,151) (2,233) (2,452) (4,022)
Current tax liabilities 3 - (2,321) (2,321) (2,827)
Total current liabilities (3,389) (5,464) (10,111) (12,348)
Non-current liabilities
Deferred tax liabilities 3 (1,668) - (3,515) (2,833)
Total non-current liabilities (1,668) - (3,515) (2,833)
Total liabilities (5,057) (5,464) (13,626) (15,181)
Net assets 46,765 48,572 59,630 59,372
Equity
Issued capital 43,656 44,221 44,224 44,224
Profits reserve 10,428 13,918 (21,072) 24,973
Accumulated losses (7,319) (9,568) 36,478 (9,825)
Total equity 46,765 48,572 59,630 59,372
Shares Outstanding ('000) 44,315 44,853 44,855 44,855
NTA per financial statements
Tangible assets 51,822 54,036 73,255 74,553
Total liabilities (5,057) (5,464) (13,626) (15,181)
Net Tangible Assets (Post-Tax) 46,765 48,572 59,630 59,372
Net Tangible Assets per share (Post-Tax) 1.0553 1.0829 1.3294 1.3236
Tangible assets (excl. deferred tax assets) 50,353 52,716 73,161 74,524
Total liabilities (excl. Current and deferred tax liabilities) (3,389) (3,143) (7,790) (9,521)
Net Tangible Assets (Pre-Tax) 46,964 49,572 65,371 65,004
Net Tangible Assets per share (Pre-Tax) 1.0598 1.1052 1.4574 1.4492
Source: Monash’s audited financial statements for FY19 and FY20, reviewed financial statements for 1H21, YTD21 unaudited management accounts
Notes:
1 Financial assets reflect Monash’s long investment portfolio across Australian and International securities which are both listed
and unlisted.
2 Financial liabilities reflect Monash’s short investment portfolio. As at January 2021, Monash had three short investments.
3 Current tax and deferred tax liabilities as at January 2021 are $2.8m (June 2020: $2.3m) and $2.8m (June 2020: nil), respectively.
Monash carries these tax liabilities given the large unrealised gains that resulted from their outperformance in the YTD21 period.
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3.4. Capital structure
A summary of Monash’s ordinary shares and options on issue as at 31 January 2020 is shown below.
Table 8: Monash’s ordinary shares and options on issue
No. of securities
Fully Paid Ordinary Shares 44,855,003
Unlisted loyalty options 536,369
Source: Monash’s share and options register as at 31 January 2021
Each loyalty option is exercisable at $1.15 per option, expiring on 15 November 2021.
The top 20 Monash shareholders collectively own c. 60% of the shares in Monash. The top 20 shareholders as at 31 January 2021 are shown below.
Table 9: Monash Top 20 shareholders
Rank Shareholder No. of shares % shareholding
1 Cs Third Nominees Pty Limited 7,033,879 15.7%
2 National Nominees Limited 3,052,051 6.8%
3 J P Morgan Nominees Australia 2,670,139 6.0%
4 One Managed Invt Funds Ltd 2,603,005 5.8%
5 BNP Paribas Noms Pty Ltd 2,112,623 4.7%
6 Picko Pty Ltd 1,447,023 3.2%
7 Bond Street Custodians Limited 1,134,234 2.5%
8 BT Portfolio Services Limited 1,103,929 2.5%
9 Mr Barry Martin Lambert & Mrs Joy Wilma Lillian Lambert 1,000,000 2.2%
10 BNP Paribas Nominees Pty Ltd 996,007 2.2%
11 HSBC Custody Nominees 547,616 1.2%
12 Morgcam Pty Ltd 540,953 1.2%
13 Mr Alan William Blow 512,289 1.1%
14 Mr Paul Hugh Clitheroe & Mrs Vicki Clitheroe 500,000 1.1%
15 De Soysa Super Management 500,000 1.1%
16 Anisam Pty Ltd 418,861 0.9%
17 Benjamin Hornigold Ltd 413,609 0.9%
18 Shields Nominees Pty Ltd 400,000 0.9%
19 Abbawood Nominees Pty Ltd 367,000 0.8%
20 Gaseous Pty Ltd 323,366 0.7%
Total Top 20 27,676,584 61.7%
Other security holders 17,178,419 38.3%
Total Fully Paid Ordinary Shares outstanding 44,855,003 100.0%
Source: Monash share registry at 31 January 2021
3.5. Historical share trading analysis
Monash’s share price movement over the 12 month period to 31 January 2021 is shown below.
Figure 3: Daily closing share price and trading volume (1 February 2020 to 31 January 2021)
Source: S&P Capital IQ
-
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21
Volu
me t
raded (
millions)
Last
pri
ce (
$)
Volume traded Last Price
MONASH ABSOLUTE INVESTMENT COMPANY LTD 11
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We note the following key movements from the chart above:
The outbreak of the COVID-19 pandemic from February to March 2020 resulted in a significant sell down in global equity markets with the ASX entering a bear market. Over this period, Monash’s share price saw a reduction of 35.4% from their peak in February of $1.05.
Following investment decisions made by Management during the COVID-19 outbreak, Monash adjusted their portfolio position by reducing cash to 2% in April 2020 and becoming fully invested in stocks poised for a rebound in the equity markets. Monash’s share price has increased 102% from its March low of $0.66 to $1.32 at 31 January 2021.
The following table summarises the movement in Monash’s share price following selected ASX announcements over the 12 month period to 31 January 2021.
Table 10: Selected Monash ASX announcements from 1 February 2020 to 31 January 2021
Date Headline Share price
following announcement ($)
Change (%)
3/09/2020 Webinar Presentation - Post reporting season update opens new window 1.06 -2.5%
3/09/2020 Update on the proposed ETMF restructure opens new window 1.06 -2.5%
19/08/2020 2020 Annual Report to shareholders & Appendix 4E 1.05 3.0%
11/06/2020 Webinar Presentation - Monash Investors Performance Update opens new window 1.00 -8.0%
11/05/2020 Information of expiry of Listed Options 1.02 3.5%
5/05/2020 Execution of Implementation Agreement for ETMF restructure 0.95 8.0%
5/05/2020 Webinar Presentation - Update from Monash Investors 0.95 8.0%
13/02/2020 Half Yearly Report and Accounts 1.03 0.0%
Source: ASX Announcements, S&P Capital IQ and BDO analysis
3.6. Volume weighted average price analysis
The following table summarises an analysis of the Volume Weighted Average Price (VWAP) for Monash.
Table 11: Volume weighted average price analysis to 31 January 2021
Period Price Price Price Cumulative Cumulative % of
(Low) (High) VWAP value volume issued capital
$ $ $ $m m
1 day 1.32 1.33 1.32 0.03 0.02 0.1%
1 week 1.32 1.34 1.33 0.07 0.05 0.1%
1 month 1.30 1.34 1.32 1.34 1.02 2.3%
3 months 1.15 1.36 1.28 4.18 3.27 7.3%
6 months 0.97 1.36 1.18 7.55 6.39 14.2%
12 months 0.66 1.36 1.04 18.48 17.77 39.8%
Source: S&P Capital IQ
We note the following with respect to the VWAP analysis displayed above:
Monash’s share price has been subject to significant volatility in the preceding 12 months due to the outbreak of COVID-19, exhibited by the share price range of $0.66 to $1.36.
Over the 12-month period preceding 31 January 2021, the cumulative value of Monash shares traded was $18.5m, with the 12-month volume traded equivalent to 39.8% of total issued capital.
Monash is considered to have relatively low levels of liquidity as less than 1.0% of total issued capital is traded on a weekly basis.
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3.7. Discount to NTA
As evidenced in Figure 4 below, Monash’s share price has historically traded at a discount to the pre-tax and post-tax NTA.
Figure 4: Monash share price discount to NTA
Source: S&P Capital IQ, ASX announcements, BDOCF analysis
The observed pre-tax discount as at January 2021 was 8.8% and the post-tax discount was 0.2%. We note that share
price discounts to NTA for LICs primarily exist due to multiple reasons. Two factors that may contribute to the
discount are:
Liquidity: As the pricing of an LIC is driven by the demand and supply of market forces as opposed to the fund’s NTA, low levels of liquidity in a closed-end fund can contribute to a divergence in price to NTA.
Operating costs: High levels of operating costs as a percentage of an LIC’s NTA, particularly for small-to-mid capitalisation sized funds, can contribute to the divergence in share price to NTA.
4. INDUSTRY ANALYSIS
4.1. Overview of LICs
An LIC is a listed company which invests in a portfolio of assets, generally using either an actively traded or index
based investment strategy. LICs operate as closed-ended funds with a fixed number of shares that can be traded. The
number of shares available is set by the number of shares issued on IPO and can be increased or decreased further
through capital raisings or share buy-backs.
Through investment in an LIC structure, shareholders have the opportunity to gain access to a share in a managed
diversified portfolio.
LICs are subject to company tax on earnings and have the ability to pay distributions to investors which may have
franking credits attached. The company has discretion as to when distributions are made.
4.2. Overview of ETMFs
An ETMF is a listed fund operating in the form of an open-ended unit trust where the investment manager employs an
actively managed investment strategy. Under an ETMF structure, an investor’s unit holding in the fund is determined
by the unit price and the dollar value of the investment at the date of acquisition.
Through the open-ended unit structure, the ETMF has an unlimited in-flow and out-flow of unit purchases as managed
through a market maker arrangement. The market maker is an intermediary between the ETMF and investors and can
introduce liquidity through their ability to create and redeem ETMF units relative to demand exhibited in the ETMF’s
units.
The liquidity introduced by the market maker may provide an equilibrium in demand and the ability for the ETMF’s
traded share price to closely reflect the ETMF’s NTA.
An ETMF structure also enables dual registry whereby investors are able to enter or exit either directly through the
responsible entity or by trading units on the ASX.
ETMFs are not taxed, and pre-tax income is distributed to unitholders. Income that is not distributed to individual
unitholders may be assessed for tax at the highest marginal tax rate.
(25.0%)
(20.0%)
(15.0%)
(10.0%)
(5.0%)
-
5.0%
(Discount)/premium to NTA (pre-tax) (Discount)/premium to NTA (post-tax)
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4.3. Comparison of LICs and ETMFs
Table 12: Comparison of LICs and ETMFs
Criteria ETMF LIC
Legal structure Unit trust Company
Tax implications As a unit trusts, all tax obligations are passed on to investors.
As LICs are companies, they pay company tax on income and realised capital gains. Distributions to shareholders are subject to the LIC’s franking credit policy. Shareholders are then liable for tax at their marginal rate.
Liquidity Liquidity of ETMFs is facilitated through a market maker through their ability to sell units to investors and purchase units when investors sell.
Liquidity of LICs is determined by the volume of shares traded in the LIC.
Shares on issue Open-ended structure where the fund can create or redeem units according to investor demand through actions undertaken by a market maker. Under an open-ended structure, the market maker’s activities does not have share price implications.
Closed-ended structure with a fixed number of shares on issue.
Distributions All earnings and capital gains are distributed to individual unit holders. Distributions are classified as trust income and any franking credits of the underlying assets held are passed to unit holders. Unit holders are then liable for tax at their marginal tax rate.
The board of the LIC has the discretion to pay dividends. Dividends may be accompanied by franking credits.
Source: BDO CF analysis
4.4. Trading analysis of LICs and ETMFs
For comparative purposes, presented below is a summary of the industry peer group of LICs currently trading on the
ASX which exhibit a market cap size below $250m as at 31 January 2021 and have an investment style similar to
Monash.
Table 13: Peer group of LICs
Ticker Name Market
Cap ($'000s)
Last Price $
Pre-Tax NTA
$
Prem/Disc Pre-Tax
NTA %
Post-Tax NTA
$
Prem/Disc Post-Tax
NTA %
ASX:QVE QV Equities Limited 223,493 0.91 1.00 (9.0%) 1.02 (10.8%)
ASX:WIC Westoz Investment Company Limited 171,810 1.29 1.37 (6.0%) 1.30 (0.8%)
ASX:FOR Forager Australian Shares Fund 152,526 1.37 1.64 (16.5%) 1.64 (16.5%)
ASX:SEC Spheria Emerging Companies Limited 117,884 1.93 2.30 (16.0%) 2.27 (15.0%)
ASX:NSC NAOS Small Cap Opportunities Company Limited
115,081 0.74 0.81 (8.6%) 0.82 (9.8%)
ASX:RYD Ryder Capital Limited 104,124 1.69 1.89 (10.8%) 1.73 (2.1%)
ASX:CAM Clime Capital Limited 99,650 0.85 0.88 (3.4%) 0.88 (3.4%)
ASX:OZG Ozgrowth Limited 80,710 0.23 0.27 (15.8%) 0.26 (9.8%)
ASX:CLF Concentrated Leaders Fund Limited 74,505 1.26 1.17 7.3% 1.12 12.1%
ASX:NCC Naos Emerging Opportunities Company Limited
64,183 1.03 1.09 (6.0%) 1.08 (5.1%)
ASX:FSI Flagship Investments Limited 63,045 2.47 2.56 (3.5%) 2.34 5.7%
ASX:MA1 Monash Absolute Investment Company Limited
59,209 1.32 1.45 (8.8%) 1.32 (0.2%)
ASX:NAC Naos Absolute Opportunities Company Limited
47,173 1.04 1.23 (15.9%) 1.18 (12.3%)
ASX:GC1 Glennon Small Companies Limited 32,146 0.71 0.97 (26.8%) 0.93 (23.7%)
Mean 100,396 1.20 1.33 (10.0%) 1.28 (6.5%)
Median 90,180 1.15 1.20 (8.9%) 1.15 (7.4%)
Source: Morningstar ASX LIC NTA Report as at 31 January 2021, S&P Capital IQ, ASX announcements, BDOCF analysis
Based on the analysis presented above, it is observed that the LIC peer group predominantly trades at discounts to
pre-tax and post-tax NTA. The median discount to pre-tax and post-tax NTA for the group is -8.9% and -7.4%
respectively.
The following table summarises the trading as at 31 January 2021 for a peer group of ETMFs trading on the ASX. We
have included ETMFs which exhibit a market cap size below $250m at 31 January 2021 and have an investment style
similar to Monash.
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Table 14: Peer group of ETMFs
Ticker Name of entity Net fund
assets ($'000s)
Last Price $
NTA (Discount)/
premium to NTA
ASX:WCMQ WCM Quality Global Growth Fund (Quoted Managed Fund) 223,573 7.46 7.44 (0.2%)
ASX:LPGD Loftus Peak Global Disruption Fund (Managed Fund) 166,957 2.95 3.04 2.8%
ASX:MOGL Montgomery Global Equities (Managed Fund) 82,256 3.37 3.33 (1.1%)
ASX:SWTZ Switzer Dividend Growth Fund (Managed Fund) 79,176 2.40 2.39 (0.5%)
ASX:IIGF Intelligent Investor Australian Equity Growth Fund (Managed Fund)
53,242 2.70 2.70 (0.1%)
ASX:AASF Airlie Australian Share Fund (Managed Fund)1 46,044 2.92 2.91 (0.2%)
ASX:INIF Intelligent Investor Australian Equity Income Fund 42,223 2.49 2.48 (0.3%)
ASX:KSM K2 Australian Small Cap Fund (Hedge Fund) 10,000 2.58 2.57 (0.4%)
Average 87,934 3.36 3.36 (0.0%)
Median 66,209 2.81 2.81 (0.3%)
Source: S&P Capital IQ, ASX announcements, BDOCF analysis
1 Airlie Australian Share Fund (Managed Fund) is a wholly owned subsidiary of Magellan Asset Management Limited.
The median discount to NTA for this ETMF peer group is -0.3% as at 31 January 2021. The NTA for ETMFs is a pre-tax
NTA as the entity is not liable for tax. The median pre-tax NTA for LICs observed above is -8.9%. Increased liquidity
and creation of an equilibrium in demand by the market maker may contribute towards ETMFs having a lower
discount.
5. OVERVIEW OF MONASH SECURITIES UNDER THE PROPOSED TRANSACTION
5.1. Proposed Structure
The following chart illustrates the new structure of Monash under the Proposed Transaction.
Figure 5: Monash structure under the Proposed Transaction
Source: Shareholder Booklet
5.2. Effect on Shareholders
Under the Proposed Transaction, Shareholders will hold a direct interest in MAAT following the First Distribution (In-
Specie) of units proportionate to their existing indirect interest in the Listed Assets and Cash Transfer Amount
transferred, and continue to hold the same number of shares in the existing but subsequently delisted Monash
structure, MA1-Unlisted, comprising the Unlisted Assets, deferred tax and cash reserve.
AQUA Rules prohibit the inclusion of unlisted investments in an ETMF, therefore the Unlisted Assets will remain within
MA1-Unlisted. The Director’s intend to provide fully-franked distributions to Shareholders from MA1-Unlisted for the
Unlisted Assets and remaining surplus cash following liquidation of the Unlisted Assets and ultimately MA1-Unlisted by
30 June 2022.
Monash Shareholders Monash Optionholders
MA1-Unlisted MAAT
Listed (AQUA quoted)
Listed securities
+ Cash
Unlisted securities
+ Cash
MONASH ABSOLUTE INVESTMENT COMPANY LTD 15
INDEPENDENT EXPERT REPORT
Shareholders are not required to contribute any payment for the MAAT units. There will be no change to the number
of shares of the Company on issue as a result of the Proposed Transaction, and the rights attached to the shares will
not be affected by the Proposed Transaction.
5.3. Effect on Optionholders
If the Proposed Transaction proceeds, ASX Listing Rule 7.22.3 requires that the terms of the outstanding options be
reorganised such that the exercise price of each option will be reduced by the amount returned as capital in relation
to each share.
There will be no change to the number of options on issue as a result of the Proposed Transaction. The exact value of
the reduction in the exercise price will be known following the implementation of the Proposed Transaction, when the
value of the Listed Assets has been ascertained.
5.4. Changes to the Investment Management Agreement
Under the Proposed Transaction, Monash and the Fund Manager will enter into a deed of variation to amend the
existing IMA entered into on 23 February 2016 to allow the transfer of the Listed Assets and Cash Transfer Amount to
the Responsible Entity and to allow the Proposed Transaction.
The Fund Manager and Responsible Entity entered into a new IMA on 9 November 2020, under which the rights and
obligations of each party are conditional upon the successful admission of MAAT units to the ASX.
Under the new IMA, it is the Fund Manager’s responsibility to manage the assets of MAAT and reviewing the portfolio,
liquidity and trading levels at regular intervals to ensure it complies and is managed in accordance with the
investment strategy for MAAT. The Fund Manager will also provide instructions to Morgan Stanley & Co International
plc as Custodian for MAAT, and the Market Maker in relation to transactions concerning the assets of MAAT.
Key variances with between the existing, amended and new IMA are summarised in the following table.
Table 15: Changes to the IMA
Term Existing IMA Amended IMA (MA1-Unlisted) New IMA (MAAT)
Investment strategy Benchmark Unaware (without regard to the composition of a
market index).
Realise the value from the Unlisted Assets until MA1-Unlisted
is wound up.
Consistent with the Existing IMA.
Management fee 1.50% 1.50% 1.25%
Performance fee 20% 20% 20%
Performance fee hurdle RBA Cash Rate RBA Cash Rate RBA + 5%
Initial term 10 years 10 years 10 years
Automatic extension 5 years 5 years 10 years
Notice period 6 months 6 months 3 months
Source: Monash Management Agreement dated 23 February 2016, the Shareholder Booklet and Management information
5.5. Overview of Market Maker agreement
The Responsible Entity in connection with Monash has appointed Macquarie Securities (Australia) Limited as its market
maker agent for MAAT. Under the market making services agreement, MSAL will act as Market Maker for the Fund
Manager to provide liquidity to investors on the ASX AQUA market by acting as a buyer and seller of units as required
in the ordinary course of investment and management of assets of MAAT. The Market Maker is required to:
comply with all applicable law and policies of either ASIC, ASX, APRA or AUSTRAC;
act in accordance with the instructions provided by the Fund Manager;
deal in a financial product by issuing, applying for, acquiring, varying or disposing financial products including securities on behalf of MAAT;
receive all instructions including maximum number of units the Fund Manager is willing to create in any given day (subject to certain thresholds); and
post daily bids and offers subject to parameters agreed with the Responsible Entity.
In connection with MSAL’s market making activities, the Responsible Entity, in connection with MAAT, will pay MSAL a
monthly fee during the term of the market making services agreement of AUD$10k per month plus GST ($120k per
annum) for a maximum of two listed funds. Brokerage/commission is charged at a rate of 5 basis points plus GST of
the gross dollar value executed, this includes execution in relation to market making and hedging equities. For other
asset classes such as futures and foreign exchange contracts, brokerage/commission is determined from time to time.
MONASH ABSOLUTE INVESTMENT COMPANY LTD 16
INDEPENDENT EXPERT REPORT
5.6. Pro-forma financial position following the Proposed Transaction
For the purposes of our analysis we have assumed that the Proposed Transaction occurred on 31 January 2021, being
the most recent month end date prior to this Report. We have assumed that the following transactions occurred as at
31 January 2021:
1. A portion of the listed equity investments has been liquidated to fund future cash distributions to be paid by
MA1-Unlisted. These distributions are expected to utilise all available franking credits.
2. The remaining Listed Assets and Cash Transfer Amount have been transferred to MAAT.
3. The Unlisted Assets and remaining balance sheet items remain in MA1-Unlisted.
The pro forma financial position reflecting the above adjustments to the financial position as at 31 January 2021 is
summarised below.
Table 16: Pro forma balance sheet
$'000 Monash
31-Jan-21
Adjustments
Adjusted Monash
31-Jan-21 MAAT
MA1-Unlisted
Current assets
Cash 19,871 1, 3 7,724 27,595 2,091 25,504
Other receivables 31 - 31 - 31
Financial assets at fair value 54,597 1, 2, 3 (7,724) 46,873 45,346 1,527
Other current assets 24 - 24 - 24
Total current assets 74,524 - 74,524 47,438 27,087
Non-current assets
Deferred tax assets 29 3 (14) 29 - 15
Total non-current assets 29 (14) 29 - 15
Total assets 74,553 (14) 74,553 47,438 27,101
Current liabilities
Other payables (5,498) - (5,498) - (5,498)
Financial liabilities at fair value (4,022) - (4,022) (4,022) -
Current tax liabilities (2,827) - (2,827) - (2,827)
Total current liabilities (12,348) - (12,348) (4,022) (8,326)
Non-current liabilities
Deferred tax liabilities (2,833) - (2,833) - (2,833)
Total non-current liabilities (2,833) - (2,833) - (2,833)
Total liabilities (15,181) - (15,181) (4,022) (11,158)
Net assets 59,372 (14) 59,372 43,415 15,943
Source: Monash’s YTD21 unaudited management accounts, Management information and BDOCF analysis
Notes:
1
Cash for the Second Distribution (Special Dividend)
In order to utilise Monash’s existing franking credits, Management are proposing to declare a cash dividend to Shareholders to
be paid in FY22. This cash dividend will be funded through the liquidation of $7.7m of the listed equity investments. Shareholders
will be offered the opportunity to reinvest this cash dividend in MAAT.
The liquidation of financial assets to fund the Second Distribution (Special Dividend) will result in a capital gains tax event. A
gain or loss will arise on the disposal of each asset equal to the difference between the consideration received on disposal and
the cost of the asset. Realised gains and losses on the disposal of the listed assets will be required to be included in the
calculation of the Company’s taxable income. This transfer will result in a crystallisation of the Company’s deferred tax liability.
Management have advised that the expected tax liability associated with the liquidation of all of Monash’s financial assets,
including this $7.7m, is reflected in the total current and deferred tax liabilities balance of $5.6m.
2
Transfer of Listed Assets and Cash Transfer Amount to MAAT
Under the Proposed Transaction, Listed Assets with an estimated fair value of $45.3m in long positions and $4.0m in short
positions will be transferred to MAAT. An estimated Cash Transfer Amount of $2.1m will also be transferred.
The transfer of the Listed Assets to MAAT will result in a capital gains tax event for Monash. Management have advised that the
expected tax liability associated with the transfer of these assets is included in the total current and deferred tax liabilities
balance of $5.6m.
MONASH ABSOLUTE INVESTMENT COMPANY LTD 17
INDEPENDENT EXPERT REPORT
3
Assets and liabilities retained in MA1-Unlisted
Monash’s unlisted equity security assets of $1.5m will be retained in MA1-Unlisted following the Proposed Transaction, together
with cash to fund the proposed dividends (including the declared 13c dividend to be paid in April 2021), other receivables (GST),
other current assets, deferred tax assets, current and deferred tax liabilities, and other payables. Management estimate a $14k
adjustment to deferred tax assets for potential gains on realisation of the unlisted assets in MA1-Unlisted, reducing the balance
to $15k.
5.7. Cost structure post transaction
The ongoing running costs of MAAT and MA1-Unlisted are expected to change following the Proposed Transaction.
The ongoing running costs associated with the ETMF structure total $1.0m per annum. These costs are shown in the
following table.
Table 17: Estimated MAAT running costs
$'000 Estimated annual amount
Management fee (at 1.25% of NTA per annum, excluding GST) 559
Market maker costs (refer to Section 4.3 for details 120
Administrator costs 100
Other running costs (Responsible Entity fees, compliance, registry fees, iNAV services, audit, ASIC fees, ASX chess fees
222
Estimated total 1,001
Source: Market Making Agency Agreement dated 25 November 2020, Draft Investment Management Agreement, the Shareholder Booklet and Management information
The ongoing running costs associated with the MAAT imply a Management Expense Ratio (MER) of 2.3% on the pro
forma MAAT net assets of $43.6m as per Section 5.6.
The remaining costs associated with MA1-Unlisted until liquidation have been determined by Management to total
c. $0.6m. These costs are shown in the following table.
Table 18: Estimated MA1-Unlisted running costs until liquidation
$'000 Estimated costs
Directors Fees 200
Management fees (at 1.50% of NTA per annum excluding GST) 134
Accounting fees 90
Company secretary fees 50
Other running costs (Unlisted registry costs, ASIC filing and other regulatory costs, tax and sundry costs)
139
Estimated total 613
Source: Management information
MONASH ABSOLUTE INVESTMENT COMPANY LTD 18
INDEPENDENT EXPERT REPORT
6. FAIRNESS ASSESSMENT AND VALUATION METHODOLOGY
6.1. Fairness assessment overview
The Proposed Transaction will be fair if the FMV of the Proposed Transaction Securities on a minority basis is equal to or greater than the FMV of a Monash share prior to the Proposed Transaction on a minority basis.
We have utilised a calculation date of 31 January 2021 (Valuation Date) as it is the most recent month end date and ASX released NTA valuation as at the date of our Report.
The valuation methods commonly used for the above analyses are considered below.
6.2. Common valuation methodologies
Details of common methodologies for valuing businesses and assets are included at Appendix 3. The principal methodologies which can be used are as follows:
Discounted cash flow (DCF)
Capitalisation of maintainable earnings (COE)
Net asset value (NAV)
Net tangible assets on a realisation basis (NRV)
Quoted market price basis (QMP).
Set out below is a discussion around the valuation methods we consider appropriate for the purposes of undertaking our valuation assessment of the Monash Shares.
6.3. Selected valuation methods for Monash Shares
In accordance with RG 111.15, we have considered the FMV of Monash on the basis of “a knowledgeable and willing, but not anxious, seller that is able to consider alternative options to the bid”. This approach does not take into account the particular circumstances of any specific transaction, and therefore we have not considered whether there is any premium in value attached to the strategic benefits or gains from synergies that may be inherent in an acquisition by a specific party, e.g. an industry competitor or supplier.
As summarised below, we consider the NAV and QMP approaches to be the most appropriate valuation methods for Monash in relation to the Proposed Transaction.
We have chosen these methodologies for the following reasons:
Table 19: Selection of valuation methodology
Methodology Appropriate Explanation
NAV
The NAV approach is an appropriate method for the valuation of LICs and ETMFs. All LICs and
ETMFs release information related to NTA to the market on a monthly basis. The portfolio
investments for each LIC and ETMF are marked-to-market each month based upon the trading
price on their relevant securities exchange for each security held (with the exception of
unlisted investments). As such, Monash’s reported NTA per share effectively reflects the FMV of
the NTA of the Company. Adjustments are made to the reported NTA to reflect the discount or
premia the LIC/ETMF trade at, and to account for the existence of options and other securities
on issue.
QMP
The QMP method represents the value that a Monash Shareholder can receive for a share if sold
on the ASX market.
The QMP basis is a relevant methodology to consider because Monash shares are listed on the
ASX asnd this reflects the value that a Monash Shareholder will receive when selling to a willing
but not anxious buyer. This price means that there is a regulated and observable market where
Monash shares can be traded. However, in order for the QMP to be considered appropriate, the
Company’s shares should be sufficiently liquid and the market should be fully informed of the
Company’s activities.
Methodology Appropriate Explanation
FME x
The future maintainable earnings method is most commonly applicable to profitable businesses
with steady growth history and forecasts. We do not consider the FME methodology to be
appropriate for LICs or ETMFs as their earnings are volatile in line with market movements.
DCF x We have not applied the DCF method to value Monash due to the lack of suitably reliable long
term forecast financial information.
Source: BDOCF analysis
MONASH ABSOLUTE INVESTMENT COMPANY LTD 19
INDEPENDENT EXPERT REPORT
6.4. Other valuation considerations
6.4.1. Future events
The business of Monash assumed in this valuation, is that which exists at the date of this IER. Growth potential which
may result from new activities, business initiatives, acquisitions and the like (which are not capable of estimation), is
not within the scope of this valuation.
6.4.2. Valuation in accordance with APES 225
This engagement has been conducted in accordance with professional standard APES 225 Valuation Services, as issued
by the Australian Professional and Ethical Standards Board.
7. VALUATION OF A MONASH SHARE PRIOR TO THE PROPOSED TRANSACTION
Our valuation assessment of Monash shares pre transaction is based upon the QMP method and the NAV method. This
section does not reflect Management’s Proposed Transaction, rather outlines the scenarios available to Shareholders to
realise value from Monash under the current LIC structure as well as enable a comparison to the likely value to
Shareholders as a result of the Proposed Transaction.
7.1. FMV of a Monash share using the QMP method
The quoted market value of a company’s shares is reflective of a minority interest. A minority interest is an interest in
a company that is not significant enough for the holder to have an individual influence in the operations and value of
that company.
RG 111.69 states that for the quoted market price methodology to be an appropriate methodology, there needs to be a
‘liquid and active’ market in the shares and allowing for the fact that the quoted price may not reflect their value
should 100% of the securities not be available for sale. We consider the following characteristics to be representative
of a liquid and active market:
regular trading in a company’s securities;
approximately 1% of a company’s securities are traded on a weekly basis;
the spread of a company’s shares must not be so great that a single minority trade can significantly affect the market capitalisation of a company; and
there are no significant and unexplained movements in share price.
A company’s shares should meet all of the above criteria to be considered ‘liquid and active’. However, failure of a
company’s securities to exhibit all of the above characteristics does not necessarily mean that the value of its shares
cannot be considered relevant.
As seen in Section 3.6 the shares of Monash are not liquid, however, the traded price is the highest observable price
negotiated in an open and unrestricted market between a knowledgeable, willing, but not anxious purchasers and
sellers on an arm’s length basis.
Table 20: VWAP Share price analysis at 31 January 2021
Period Price Price Price Cumulative Cumulative % of
(Low) (High) VWAP value volume issued capital
$ $ $ $m m
1 day 1.32 1.33 1.32 0.03 0.02 0.1%
1 week 1.32 1.34 1.33 0.07 0.05 0.1%
1 month 1.30 1.34 1.32 1.34 1.02 2.3%
3 months 1.15 1.36 1.28 4.18 3.27 7.3%
6 months 0.97 1.36 1.18 7.55 6.39 14.2%
12 months 0.66 1.36 1.04 18.48 17.77 39.8%
Source: Capital IQ, BDOCF analysis
Our share price analysis has been performed to align with the latest financial information available and most recent
month end date and ASX released NTA valuation as at the date of our Report. On the basis of the VWAP analysis for
Monash as at 31 January 2021, we consider the FMV of Monash to be in the range of $1.30 to $1.34 on a minority basis,
with a midpoint of $1.32, based on the preceding 1 month of trading to 31 January 2021.
Table 21: FMV of a Monash share prior to the Proposed Transaction using the QMP approach
$ Low High
FMV per Monash share using the QMP approach 1.30 1.34
Source: BDOCF analysis
MONASH ABSOLUTE INVESTMENT COMPANY LTD 20
INDEPENDENT EXPERT REPORT
7.2. FMV of a Monash share using the NAV method
We have also assessed the FMV range of Monash using the NAV methodology. The total net asset value represents 100%
of the equity value and typically represents a controlling interest value, however as Monash is an LIC managed by a
Fund Manager, no shareholder can exert significant control over the assets of the Company. We therefore consider the
NAV per share to reflect a minority interest comparable with the QMP per share.
The NAV valuation has been performed using the 31 January 2021 unaudited management accounts and is summarised
in the following table.
Table 22: FMV of a Monash share prior to the Proposed Transaction using the NAV approach
$'000 Ref Note Jan-21
(post-tax) Jan-21
(pre-tax)
Net assets 3.3 1 59,372 65,004
Adjustment for the intrinsic value of outstanding loyalty options 2 (91) (91)
Adjusted net assets 59,281 64,912
Shares outstanding ('000) 3.4 44,855 44,855
FMV per share ($) 1.32 1.45
Source: Monash’s unaudited management accounts for YTD21, BDOCF analysis
Notes:
1
Market value of net assets
Monash have reported pre- and post-tax NTAs as at 31 January 2021. All listed assets are reported at market value as at this
date. Therefore, the NTA of Monash materially reflects the market value of its assets and liabilities as at 31 January 2021.
2
Adjustment for the intrinsic value of outstanding loyalty options
As at 31 January 2021, there were 536,369 outstanding unlisted loyalty options. For the purposes of our pre transaction valuation,
we assume that the options will continue to be held, therefore we have adjusted the NTA to reflect the intrinsic value of these
options. We estimate an intrinsic value of $0.17 per option, based on the difference between the midpoint QMP valuation of
$1.32 and the option exercise price of $1.15. The total intrinsic value for all outstanding options of $91k has been deducted
from the NTA.
On the basis of unaudited management accounts as at 31 January 2021 and our adjustment for outstanding options, we
consider the NAV per share of Monash pre transaction to range between $1.32 and $1.45 on a post-tax and pre-tax basis
respectively.
7.3. Conclusion on the FMV of a Monash share prior to the Proposed Transaction
Our preferred valuation approach for Monash is the QMP methodology as the traded price is theoretically the highest
observable price negotiated in an open and unrestricted market between a knowledgeable, willing, but not anxious
purchasers and sellers on an arm’s length basis.
The QMP approach however reflects a value for a Monash share that is lower than the value assessed under the NAV
approach. Based on the midpoint of our assessed value ranges above, we note a discount of share price to NAV of -8.8%
to pre-tax NTA and -0.1% to post-tax NTA.
On a pre-tax basis, a c. -9% discount does not appear unreasonable when compared against the average discount to pre-
tax NTA exhibited by the industry peer group of LICs noted in Section 4.4 of -10.0%.
On a post-tax basis, we note that Monash has a greater differential between pre-tax NTA and post-tax NTA than the
majority of the industry peer group. When compared against a refined group of LICs displaying similar tax differentials,
in particular Westoz Investment Company Limited, Ryder Capital Limited and Flagship Investments Limited, the observed
discount to post tax NTA for Monash of -0.1% appears within the range of this refined group of between a discount of
-2.1% and premium of 5.65%.
Based on the consistency in discounts exhibited to NAV by Monash with the comparable LIC industry, we consider the
share price to be a reliable indicator of the FMV of Monash, pre transaction.
As a result we consider the QMP valuation range to be the preferred value range as set out below.
Table 23: Preferred valuation range for a Monash share prior to the Proposed Transaction
$ Low High
Preferred valuation range for a Monash share pre transaction 1.30 1.34
Source: BDOCF analysis
MONASH ABSOLUTE INVESTMENT COMPANY LTD 21
INDEPENDENT EXPERT REPORT
8. VALUATION OF THE POST TRANSACTION SECURITIES
As a result of the Proposed Transaction, the NTA of the assets of the Company will be divided between the following
entities:
MAAT, which will include the NTA of the transferred Listed Assets and Cash Transfer Amount, and
MA1-Unlisted, which will include the Unlisted Assets, deferred tax assets and liabilities and cash to fund the planned fully-franked dividends as part of the Second Distribution (Special Dividend) and Third Distribution (Capital Return).
Under the Proposed Transaction, Shareholders will hold a direct interest in MAAT following the First Distribution (In-
Specie) of units proportionate to their existing indirect interest in the Listed Assets and Cash Transfer Amount, and
continue to hold the same number of shares in the existing but subsequently delisted Monash structure, MA1-Unlisted.
Shareholders are not required to contribute any payment for the MAAT units and the rights attached to the shares will
not be affected by the Proposed Transaction.
Under the Proposed Transaction, Optionholders will only have an interest in MA1-Unlisted. We note that Mr Simon Shields
(the non-independent director) has announced his intention to exercise all 200,000 options held prior to the record date
in order to participate in the Proposed Transaction with an additional 200,000 shares. As the outstanding loyalty options
are currently in-the-money, we assume for the purposes of our post transaction valuation that all optionholders will
choose to exercise their options prior to the Proposed Transaction.
The Posts Transaction Securities that each Monash Shareholder will be entitled to per Monash share held will include:
One unit in MAAT, and
One share in MA1-Unlisted, which will include the cash and the entitlement to receive fully-franked dividends.
Our valuation assessment of the Post Transaction Securities is based upon the NAV method, applied to both MAAT and
MA1-Unlisted adjusted for the assumed exercise of all outstanding loyalty options.
8.1. FMV of a MAAT unit
In assessing the FMV of a MAAT unit we have considered the NAV per unit, adjusted by the likely trading discount or
premium to NTA as observed for peer ETMFs.
8.1.1. Net assets transferred to MAAT
As a result of the Proposed Transaction, MAAT will hold the net assets shown in the following table.
Table 24: Net assets transferred to MAAT under the Proposed Transaction
$'000 MAAT
Current assets
Cash 2,091
Other receivables -
Financial assets at fair value through profit and loss 45,346
Other current assets -
Total current assets 47,438
Non-current assets
Deferred tax assets -
Total non-current assets -
Total assets 47,438
Current liabilities
Other payables -
Financial liabilities at fair value through profit and loss (4,022)
Current tax liabilities -
Total current liabilities (4,022)
Non-current liabilities
Deferred tax liabilities -
Total non-current liabilities -
Total liabilities (4,022)
Net assets 43,415
Source: Management information, BDOCF analysis
MONASH ABSOLUTE INVESTMENT COMPANY LTD 22
INDEPENDENT EXPERT REPORT
8.1.2. Assessment of applicable trading discount
Our review of ASX listed ETMF’s of a comparable fund size and style to MAAT as at 31 January 2021 is summarised in the
table below. In addition to the analysis provided in Section 4.4, we note here the operating cost structure of the other
ETMF’s relative to MAAT.
Table 25: Comparable Australian ETMFs total operating costs as a percentage of average NTA
Ticker Name of entity Net fund
assets ($'000s)
Last Price $
NAV (Discount)/
premium to NTA
MER % (incl. performance
fees)
MER % (excl. performance
fees)2
ASX:WCMQ WCM Quality Global Growth Fund (Quoted Managed Fund)
223,573 7.46 7.44 (0.2%) 2.0% 1.5%
ASX:LPGD Loftus Peak Global Disruption Fund (Managed Fund)
166,957 2.95 3.04 2.8% N/A N/A
ASX:MOGL Montgomery Global Equities (Managed Fund)
82,256 3.37 3.33 (1.1%) 2.1% 2.1%
ASX:SWTZ Switzer Dividend Growth Fund (Managed Fund)
79,176 2.40 2.39 (0.5%) 1.3% 1.3%
ASX:IIGF Intelligent Investor Australian Equity Growth Fund (Managed Fund)
53,242 2.70 2.70 (0.1%) N/A N/A
ASX:AASF Airlie Australian Share Fund (Managed Fund)1
46,044 2.92 2.91 (0.2%) 0.9% 0.8%
ASX:INIF Intelligent Investor Australian Equity Income Fund
42,223 2.49 2.48 (0.3%) 1.2% 1.2%
ASX:KSM K2 Australian Small Cap Fund (Hedge Fund)
10,000 2.58 2.57 (0.4%) 3.7% 3.2%
Average 87,934 3.36 3.36 (0.0%) 1.9% 1.3%
Median 66,209 2.81 2.81 (0.3%) 1.7% 1.2%
MAAT Pro forma 2.3%
Source: S&P Capital IQ, ASX announcements, BDOCF analysis 1 Airlie Australian Share Fund (Managed Fund) is a wholly owned subsidiary of Magellan Asset Management Limited. 2 Discretionary transaction expenses (brokerage and short selling cost) have been removed from each respective comparable ETMF. Note: The MERs have been calculated as the percentage of total FY20 (latest annual period) operating expenses to each comparable ETMF’s average NTA.
Our research indicates that the variance to NTA for the peer group of Australian ETMFs ranges between a discount of
-0.5% and a premium of 2.8%, with a median discount to NTA of -0.3%.
The MER for the group ranges between 0.8% and 3.2% with a median of 1.2%, excluding performance fees and transaction
expenses. As discussed in Section 5.7, the pro forma MER for MAAT is at the higher end of this observed range, with an
expected MER of 2.3%.
We note that there does not appear to be a significant correlation between the observed discount to NTA and the size
of the fund assets, nor between the observed discount to NTA and the ETMF’s MER. However, MAAT will likely be the
3rd smallest and have the highest MER of the peer group. Therefore we consider a discount at the higher end of the
observed range to be appropriate for MAAT.
Based on the identified peers of Australian ETMFs and Monash’s higher operating cost structure relative to the
comparable company set, we deem a discount to NAV range for the ETMF of 0.5% to 1.0% to be appropriate for MAAT.
8.1.3. FMV of a MAAT unit following the Proposed Transaction using the NAV method
We have assessed the FMV range of a MAAT unit using the NAV methodology, including an adjustment for a trading
discount as observed in comparable Australian ETMFs.
Table 26: FMV of a MAAT unit using the NAV approach
MAAT Ref Note Low value High value
Net assets ($’000) 8.1.1 43,415 43,415
Units for shares outstanding as at 31 January 2021 ('000) 3.4 44,855 44,855
Units for additional shares upon exercise of outstanding loyalty options ('000) 3.4 536 536
Units outstanding (‘000) 5.2 1 45,391 45,391
NAV per share (pre-discount) ($) 0.96 0.96
Adjustment for likely trading discount to NAV (%) 8.1.2 2 1.0% 0.5%
FMV per share ($) 0.95 0.95
Source: Monash’s unaudited management accounts for YTD21, BDOCF analysis
MONASH ABSOLUTE INVESTMENT COMPANY LTD 23
INDEPENDENT EXPERT REPORT
Notes:
1
Units outstanding
As discussed in Section 5.2, units will be distributed to Monash Shareholders in the First Distribution (In-Specie) in proportion to
their existing interest at a ratio of 1:1 (one Unit for one Share). We assume all 536,369 outstanding options as at 31 January
2021 will be exercised prior to the distribution and have therefore applied a total of 45,391,372 MAAT units in our analysis.
2
Discount to trading NAV (%)
As discussed in Section 8.1.2, we deem a discount of 0.5% to 1.0% to be appropriate to reflect the likely trading discount observed
in MAAT relative to NTA, based on the observed discounts noted in comparable Australian ETMFs.
Due to the narrow trading discount range applied to the NAV, there is an immaterial variance between the assessed low
and high NAV per share of MAAT post transaction of $0.95.
8.2. FMV of a MA1-Unlisted share
In assessing the FMV of a MA1-Unlisted share we have considered the NAV per unit, adjusted for the assumed exercise
of options held, additional running costs and the potential value attributable to available franking credits.
8.2.1. Net assets retained in MA1-Unlisted
As a result of the Proposed Transaction, MA1-Unlisted will hold the net assets shown in the following table.
Table 27: Net assets retained in MA1-Unlisted under the Proposed Transaction
$'000 MA1-Unlisted
Current assets
Cash 25,504
Other receivables 31
Financial assets at fair value through profit and loss 1,527
Other current assets 24
Total current assets 27,087
Non-current assets
Deferred tax assets 15
Total non-current assets 15
Total assets 27,101
Current liabilities
Other payables (5,498)
Financial liabilities at fair value through profit and loss -
Current tax liabilities (2,827)
Total current liabilities (8,326)
Non-current liabilities
Deferred tax liabilities (2,833)
Total non-current liabilities (2,833)
Total liabilities (11,158)
Net assets 15,943
Source: Management information, BDOCF analysis
8.2.2. Assessment of potential value attributable to franking credits
Any tax paid should generate franking credits. Management intend to leave sufficient cash in the Company to pay the
tax liability to the Australian Taxation Office and also ensure the franking generated by this transaction is streamed to
Shareholders by the payment of fully franked dividends.
The actual amount of franking credits is dependent upon the actual gains realised upon the liquidation and transfer of
Monash investments, we have therefore estimated the likely available franking credit balance on the basis of the tax
balances as at 31 January 2021.
There is uncertainty regarding the value shareholders attribute to franking credits. We assume that shareholders value
franking credits at between 0% and 80% of their face value.
Our analysis of likely available franking credits is shown in the following table.
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Table 28: Franking credit analysis
MA1-Unlisted
$'000 Ref Low value High value
Deferred tax assets 8.2.1 15 15
Current tax liabilities 8.2.1 (2,827) (2,827)
Deferred tax liabilities 8.1.1 (2,833) (2,833)
Net tax liabilities (5,645) (5,645)
Potential franking credit balance 5,645 5,645
Adjustment for value attributed to franking credits 0% 80%
Estimated value of franking credits 0 4,516
Source: BDOCF analysis
On the basis of the above analysis, we estimate the value of franking credits in MA1-Unlisted that may be available to
Shareholders to range between $0 and $4.5m.
8.2.3. FMV of a MA1-Unlisted share following the Proposed Transaction using the NAV method
We have assessed the FMV range of a share in MA1-Unlisted using the NAV methodology. We applied adjustments to the
NAV, as discussed in more detail below.
Table 29: FMV of a MA1-Unlisted share from the Proposed Transaction using NAV approach
MA1 (unlisted)
$'000 Ref Note Low value High value
Net assets (post-tax) 15,943 15,943
Adjustments:
Cash received upon exercise of outstanding loyalty options 1 617 617
MA1-Unlisted running costs 5.7 2 (613) (613)
Value of available franking credits 8.2.2 3 - 4,516
Total adjustments 4 4,520
Adjusted NAV (post-tax) 15,947 20,463
Shares outstanding as at 31 January 2021 ('000) 3.4 44,855 44,855
Additional shares upon exercise of outstanding loyalty options ('000) 3.4 536 536
Shares outstanding (‘000) 4 45,391 45,391
Value per share (post-tax) $ 0.35 0.45
Source: Monash’s unaudited management accounts for YTD21, BDOCF analysis
Notes:
1
Cash received upon exercise of outstanding loyalty options
As at 31 January 2021, there were 536,369 outstanding unlisted loyalty options. As noted above in Section 8, for the purposes
of our post transaction valuation, we assume that all outstanding unlisted loyalty options will be exercised at the exercise price
of $1.15, resulting in a cash inflow from optionholders of $617k.
2
MA1-Unlisted running costs
As discussed in section 5.2, the running costs associated with MA1-Unlisted until being wound up by 30 June 2022 have been
determined by Management to total $613k. These costs include:
Directors fees: $200k
Management fees (1.5% of Funds Under Management): $134k
Accounting fees: $90k
Company secretarial fees: $50k
Other running costs such as unlisted registry costs, ASIC filing fees, other regulatory costs, tax and sundry costs: $139k.
3 Available franking credits
As discussed in Section 8.2.2 we estimate the potential value of available franking credits to range between $0 and $4.5m.
4
Shares outstanding
As discussed in Section 5.2, there will be no change to the number of shares of the Company on issue as a result of the Proposed
Transaction. We have however assumed that all 536,369 outstanding options as at 31 January 2021 will be exercised prior to the
distribution and have therefore applied a total of 45,391,372 MA1-Unlisted shares outstanding in our analysis.
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On the basis of the above analysis, we consider the NAV per share of MA1-Unlisted post transaction to range between
$0.35 and $0.45.
8.3. Conclusion on the FMV of the Post Transaction Securities
The total value of the Post Transaction Securities attributable to Shareholders per existing Monash share held is the sum
of the value of a MA1 share and a MAAT share. The calculation of the assessed FMV of the Post Transaction Securities is
summarised in the following table.
Table 30: Value of the Proposed Transaction Summary
$ Ref Low High
Value of one MAAT unit using the NAV method 8.1.3 0.95 0.95
Value of one MA1- Unlisted share using the NAV method 8.2.3 0.35 0.45
Value of the Post Transaction Securities (on a minority basis) 1.30 1.40
Source: BDOCF analysis
We therefore consider the FMV range of the Post Transaction Securities to be between $1.30 and $1.40.
9. FAIRNESS ASSESSMENT
Our analysis has been performed by comparing the value of:
a Monash share pre transaction on a minority basis; and
the Post Transaction Securities on a minority basis.
The Proposed Transaction will be fair if the FMV of the Proposed Transaction Securities on a minority basis is equal to
or greater than the FMV of a Monash share prior to the Proposed Transaction on a minority basis.
The result of our fairness analysis is summarised below.
Table 31: Fairness summary
Fairness assessment Ref Low High
Preferred value of a Monash share prior to the Proposed Transaction (on a minority basis) 7.3 1.30 1.34
Preferred value of the Post Transaction Securities (on a minority basis) 8.3 1.30 1.40
Source: BDOCF analysis
Figure 6: Fairness assessment
Source: BDOCF analysis
As set out above, the assessed FMV of the Post Transaction Securities is above the assessed FMV range of a Monash share
prior to the Proposed Transaction. Therefore, we have concluded that the Proposed Transaction is fair to Shareholders.
Our opinion is based on economic, market and other conditions prevailing at the date of this IER. Such conditions can
change significantly over relatively short periods of time. Changes in those conditions may result in any valuation or
other opinion becoming quickly outdated and in need of revision. We reserve the right to revise any valuation or other
opinion, in the light of material information existing at the valuation date that subsequently becomes known to us.
10. REASONABLENESS ASSESSMENT
In accordance with RG 111 an offer is reasonable if it is fair. On this basis, the Proposed Transaction is reasonable to
Monash Shareholders.
$1.25 $1.27 $1.29 $1.31 $1.33 $1.35 $1.37 $1.39 $1.41 $1.43 $1.45
Value of the PostTransaction Securities (on a
minority basis)
Value of a Monash shareprior to the Proposed
Transaction (on a minoritybasis)
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Nevertheless, we have set out below a summary of other factors we consider relevant in assisting Monash Shareholders
in deciding whether or not to vote in favour of the Proposed Transaction.
Table 32: Summary of factors considered in the reasonableness assessment
Advantages
Potential for the share price to trade at a value that is closer to the NTA
It is observed that comparable Australian ETMFs which are of a similar size and scale to MAAT trade at a smaller discount to NTA than comparable Australian LICs. The observed median (discount)/premium to NTA for comparable Australian ETMFs as noted in Section 4.4 is -0.3%. As at 31 January 2021, Monash traded at a discount to pre-tax NTA of -8.8% and post-tax NTA of -0.2%.
Potential for greater liquidity Through the ETMF structure, the Market Marker can introduce liquidity by creating and redeeming ETMF units relative to demand exhibited in the ETMF’s units.
Disadvantages
Tax consequences The transfer of Monash’s listed assets to MAAT will result in an immediate crystallisation of that part of Monash’s deferred tax liability.
Any tax paid by MA1-Unlisted on its taxable income should generate franking credits which can be attached to franked dividends paid by MA1-Unlisted. Any unused franking credits will be trapped in MA1-Unlisted if it is unable to pay franked dividends in future years.
Management have structured the Proposed Transaction with the intention to distribute all available franking credits to Shareholders.
Shareholders should seek independent income tax advice in relation to the tax consequences of the Proposed Transaction.
Reduction in total value of assets held in the liquid MAAT entity
MAAT will have a smaller total asset value than the Company pre transaction due to the realisation of the Unlisted Assets, the realisation of a portion of the Listed Assets to fund the fully-franked distributions, the payment of associated tax liability upon the realisation of those assets, payment of the fully-franked dividends, and associated transaction costs.
As noted in Section 3.7 listed investment vehicles with smaller capitalisations may trade at a higher discount than larger scale investment vehicles.
Other factors
The Directors recommendation The Directors believe that the Proposed Transaction is in the best interests of the Company and recommend that Shareholders vote in favour of the Proposed Transaction.
Consistent investment strategy Shareholder investments will continue to be managed according to the same investment strategy in MAAT.
Reduced management operating costs
The management costs of MAAT following the Proposed Transaction may be lower than Monash’s management fees due to factors including:
a reduction in management fee from 1.5% to 1.25%
a reduction in performance fees due to an increase in the performance hurdle.
We do note that MAAT will incur additional costs of at least $120k per annum in relation to the Market Maker, and until the winding up of MA1-Unlisted, investors will be indirectly subject to the operating costs of two entities.
Source: BDOCF analysis
11. OVERALL OPINION
We have considered the terms of the Proposed Transaction, as outlined in this Report, and have concluded that it is fair and reasonable to Shareholders.
12. QUALIFICATIONS, DECLARATIONS AND CONSENTS
12.1. Qualifications
BDOCF is the licensed corporate finance arm of BDO Group Holdings Limited, Chartered Accountants and Business Advisers. BDOCF provides advice in relation to all aspects of valuations and has extensive experience in the valuation of corporate entities and provision of expert’s reports.
Mr David McCourt, B.Bus, CA, is a director of BDOCF and a CA certified Business Valuations Specialist. Mr McCourt is also a partner of BDO Group Holdings Limited. Mr McCourt has been responsible for the preparation of this IER.
Mr McCourt has over 20 years of experience in a number of specialist corporate advisory activities including company valuations, financial modelling, preparation and review of business feasibility studies, accounting, advising on mergers and acquisitions and advising on independent expert reports. Accordingly, Mr McCourt is considered to have the appropriate experience and professional qualifications to provide the advice offered.
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Mr Daniel Coote, B. Comm, CA, MAppFin is a director of BDOCF and a CA certified Business Valuations Specialist. Mr Coote is also a partner of BDO Group Holdings Limited.
Mr Coote has over 15 years of experience in a number of specialist corporate advisory activities including company valuaitons, financial modelling, preparing and review of business feasibility studies, accounting, advising on mergers and acquisitions and advising on independent expert reports. Accordingly, Mr Coote is considered to have the appropriate experience and professional qualifications to provide the advice offered.
12.2. Independence
BDOCF is not aware of any matter or circumstance that would preclude it from preparing this IER on the grounds of independence either under regulatory or professional requirements. In particular, we have had regard to the provisions of applicable pronouncements and other guidance statements relating to professional independence issued by Australian professional accounting bodies and ASIC.
BDOCF considers itself to be independent in terms of RG 112 independence of experts, issued by ASIC.
BDOCF was not involved in advising on, negotiating, setting, or otherwise acting in any capacity for Monash in relation to the Proposed Transaction. Further, BDO has not held and, at the date of this IER, does not hold any shareholding in, or other relationship with Monash that could be regarded as capable of affecting its ability to provide an unbiased opinion in relation to the Proposed Transaction.
BDOCF will receive a fee of approximately $57,000 plus Goods and Services Tax for the preparation of this IER. BDOCF will not receive any fee contingent upon the outcome of the Proposed Transaction, and accordingly, does not have any pecuniary or other interests that could reasonably be regarded as being capable of affecting its ability to give an unbiased opinion in relation to the Proposed Transaction.
A draft of this IER was provided to the Directors and their advisors for review of factual accuracy. Certain changes were made to the IER as a result of the circulation of the draft IER. However, no changes were made to the methodology, conclusions, or recommendations made to the Monash Shareholders as a result of issuing the draft IER.
12.3. Disclaimer
This IER has been prepared at the request of the Directors and was not prepared for any purpose other than that stated in this IER. This IER has been prepared for the sole benefit of the Directors and the Shareholders. Accordingly, this IER and the information contained herein may not be relied upon by anyone other than the Directors and the Shareholders without the written consent of BDOCF. BDOCF accepts no responsibility to any person other than the Directors and the Shareholders in relation to this IER.
The statements and opinions contained in this IER are given in good faith and are based upon BDOCF’s consideration and assessment of information provided by the Directors, executives and Management of the Company.
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APPENDIX 1: GLOSSARY
Term Definition
1H21 6 months ended 31 December 2021
AFCA Australian Financial Complaints Authority
APES 225 Accounting Professional & Ethical Standards Board Limited issued professional standard APES 225 on valuation services
APESB Accounting Professional & Ethical Standards Board Limited
APRA Australian Prudential Regulation Authority
ASIC Australian Securities & Investments Commission
ASX Australian Securities Exchange
AUSTRAC Australian Transaction Reports and Analysis Centre
BDOCF, we, our or us BDO Corporate Finance (East Coast) Pty Ltd (ABN 70 050 038 170)
Benchmark Unaware An investment strategy that is applied without regard to the composition of a market benchmark index, such as the S&P ASX300.
Cash Transfer Amount The amount of cash from the Company’s existing cash reserves to be transferred to MAAT
CFS Colonial First State Limited
Corporations Act Corporations Act 2001
DCF Discounted cash flow method
Directors Directors of Monash
EBITDA Earnings before interest, tax, depreciation and amortisation
ETMF Exchange Traded Managed Fund
First Distribution (In-Specie) The distribution of units from MAAT to Monash Shareholders on a 1 unit: 1 share basis.
FME Maintainable earnings method
FMV Fair market value
FSG Financial Services Guide
Fund Manager Monash Investors Pty Limited
FYXX Financial year ended/ending 30 June 20XX
Hometime Hometime Group Pty Limited
LIC Listed Investment Company
Licence Australian Financial Services Licence No: 247420
Listed Assets The listed securities of Monash’s funds under management to be transferred to MAAT.
Lumitron Lumitron Holdings Inc.
MA1-Unlisted The delisted Monash entity following the Proposed Transaction
MAAT Monash Absolute Active Trust (Hedge Fund)
Management Management of Monash
Market Maker MSAL acting in its capacity as market maker
MER Management expense ratio
Moboom Moboom Limited
Monash, the Company Monash Absolute Investment Company Limited
MSAL Macquarie Securities (Australia) Limited
NAV Net asset value
Shareholder Booklet Shareholder Booklet dated 31 March 2021
NRV Orderly realisation
Proposed Transaction The proposed restructure of Monash Absolute Investment Company Limited into an Exchange Traded Managed Fund
QMP Quoted market price basis
RBA Reserve Bank of Australia
Report or IER Independent expert’s report
Responsible Entity The Trust Company (RE Services) Limited
RG 111 ASIC Regulatory Guide 111 Content of expert reports
RG 112 ASIC Regulatory Guide 112 Independence of experts
Second Distribution (Special Dividend)
MA1-Unlisted intend to pay a further dividend to Shareholders for the period ending 30 June 2021.
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Term Definition
Shareholders Shareholders of Monash
Solar D Nexidus Pty Ltd (trading as Solar D)
Third Distribution (Capital Return)
MA1-Unlisted intends to pay a final dividend to Shareholders when MA1-Unlisted is wound up by no later than 30 June 2022.
UBS UBS Asset Management (Australia) Limited
Unlisted Assets The unlisted equity securities to be retained in MA1-Unlisted Post Transaction.
VWAP Volume Weighted Average Price
YTDXX Year to date period for the financial year ended/ending 30 June 20XX
Source: BDOCF
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APPENDIX 2: SOURCES OF INFORMATION
In preparing this IER, we had access to and relied upon the following principal sources of information:
Monash Annual Reports for the years ended 30 June 2019 and 30 June 2020
Monash December 2019 and December 2020 Half Yearly Report
Monash unaudited management accounts for the financial year to date period to 31 January 2021
ASX announcements
Morningstar ASX LIC NTA Report as at 31 January 2021
Management Agreement dated 23 February 2016
Market Making Agency Agreement dated 25 November 2020
Responsible Entity Implementation Agreement dated 5 May 2020
Draft Investment Management Agreement between the Responsible Entity and the Manager
Discussions with the Management of Monash
Shareholder Booklet dated 31 March 2021
Information sourced from Capital IQ
ASIC guidance notes and regulatory guides as applicable
Other generally available public information
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APPENDIX 3: VALUATION METHODS - BUSINESSES AND ASSETS
In conducting our assessment of the fair market value of Monash, the following commonly used business valuation methods have been considered:
Discounted Cash Flow Method
The discounted cash flow (DCF) method is based on the premise that the value of a business or any asset is represented by the present value of its future cash flows. It requires two essential elements:
the forecast of future cash flows of the business asset for a number of years (usually five to 10 years); and
the discount rate that reflects the riskiness of those cash flows used to discount the forecast cash flows back to net present value (NPV).
DCF is appropriate where:
the businesses’ earnings are capable of being forecast for a reasonable period (preferably 5 to 10 years) with reasonable accuracy;
earnings or cash flows are expected to fluctuate significantly from year to year;
the business or asset has a finite life;
the business is in a 'start up' or in early stages of development;
the business has irregular capital expenditure requirements;
the business involves infrastructure projects with major capital expenditure requirements; or
the business is currently making losses but is expected to recover.
Capitalisation of Earnings Method
This method involves the capitalisation of normalised earnings by an appropriate multiple. Normalised earnings are the assessed sustainable profits that can be derived by the vendor’s business and exclude any one off profits or losses. An appropriate earnings multiple is assessed by reference to market evidence as to the earnings multiples of comparable companies.
This method is suitable for the valuation of businesses with indefinite trading lives and where earnings are relatively stable or a reliable trend in earnings is evident.
Net Asset Value Methods
Asset based valuations involve the determination of the fair market value of a business based on the net realisable value of the assets used in the business.
Valuation of net realisable assets involves:
separating the business or entity into components which can be readily sold, such as individual business securities or collection of individual items of plant and equipment and other net assets; and
ascribing a value to each based on the net amount that could be obtained for this asset if sold.
The net realisable value of the assets can be determined on the basis of:
orderly realisation (NRV): this method estimates fair market value by determining the net assets of the underlying business including an allowance for the reasonable costs of carrying out the sale of assets, taxation charges and the time value of money assuming the business is wound up in an orderly manner. This is not a valuation on the basis of a forced sale where the assets might be sold at values materially different from their fair market value;
liquidation: this is a valuation on the basis of a forced sale where the assets might be sold at values materially different from their fair market value; or
continuing operations (NAV): this is a valuation of the net assets on the basis that the operations of the business will continue. It estimates the market value of the net assets but does not take into account any realisation costs. This method is often considered appropriate for the valuation of an investment or property holding entity. Adjustments may need to be made to the book value of assets and liabilities to reflect their value based on the continuation of operations.
The net realisable value of a trading entity’s assets will generally provide the lowest possible value for the business. The difference between the value of the entity’s identifiable net assets (including identifiable intangibles) and the value obtained by capitalising earnings is attributable to goodwill.
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The net realisable value of assets is relevant where an entity is making sustained losses or profits but at a level less than the required rate of return, where it is close to liquidation, where it is a holding entity, or where all its assets are liquid. It is also relevant to businesses which are being segmented and divested and to value assets that are surplus to the core operating business. The net realisable assets methodology is also used as a check for the value derived using other methods.
These approaches ignore the possibility that the entity’s value could exceed the realisable value of its assets.
Quoted Market Prices
The price that an entity’s security trades on an exchange can be an appropriate basis for valuation where:
the security trades in an efficient market place where ‘willing’ buyers and sellers readily trade the entity’s security; and
the market for the entity’s security is active and liquid.
Other Valuation Considerations
Future events
The business of Monash to be considered in this valuation is that which exists as at the current date.
Future growth which arises from the commercialisation of the prospective resources has been considered in this
valuation through our consideration of the fair market value of the tenements.
Other growth potentials, which may result from new activities, business initiatives, acquisitions and the like (which are
not capable of estimation), is not within the scope of this valuation.